Huge Week: Economic Indicators, FOMC
The joust here is between what the Street sees for earnings growth in Q4 and Q1 of 2014 and the reality of a change in the Fed’s five-year policy of economic stimulation, generally known as quantitative easing (QE).
A policy change in the form of a modest taper is becoming widely accepted as a done deal a process that will be implemented gradually assuming the economic numbers justify it..
A taper to buying $65 billion a monthy in bonds from $85 billion is not the issue.
What is important is that it IS A CHANGE in Fed policy and more changes will follow.
If the Street feels comfortable with that, look for another leg up in the stock market, if not starting in August, then in the fall.
If the reality of a change in Fed policy causes the Street to re-think its current indifference, we are looking at an 8% to 12% correction.
CONCLUSION:
So far, the bulls have the edge, continually stepping in to buy on any drop in prices. This suggests an initial taper by the Fed is of little concern as long as interest rates do not rise much further.
Technically, the market looks like it is on solid ground capable of another surge in prices.
The catalyst for a turn up or down stands to come from the impact of the many economic reports issued and comments following the FOMC meeting ending Wednesday. (SEE schedule below).
Little has been expected from the Q2 earnings reports currently being released, but Q3 earnings are seen as approximating a gain of 6.6% followed by a gain of 11.8% for Q4 (very preliminary). Support is DJIA 15,498 (S&P 500: 1,685). Resistance: DJIA 15,596 (S&P 500: 1,695). These levels are suspect, anything can happen this week with the reports on the economy and the Street’s parsing of the FOMC’s commentary
Investor’s first read– an edge before the open
DJIA: 15,558.83
S&P 500: 1,691.65
Nasdaq Comp.: 3,613.16
Russell 2000: 1,048.51
Monday, July 29, 2013 (9:10 a.m.)
TECHNICAL OBSERVATION – STOCKS:
Apple(AAPL: $440.91 )
While Q2 revenues were flat and earnings down 20%, the latter “beat” the Street’s projections. iPhone sales were the surprise, up 20% vs. a year ago.
Analysts will be revisiting estimates and we can expect some changes in ratings. With a double bottom “in” at $385, AAPL can be expected to attack resistance between $460 and $470, but not in a straight line.
Friday’s market action was positive. AAPL’s drop to $434.34 was quickly reversed and buying picked up at the close. Support is $436, AAPL can move across $450.
FACEBOOK (FB – $34.01 )
FB shares soared Thursday as Q2 revenues of $1.81 billion beat Street projections of $1.62 billion big-time. Net income more than doubled in the quarter to $333 million from $157 million a year ago. Its monthly active users increased 21% over a year ago. Mobile ad sales accounted for 41% of total revenues up from 30% in Q1.
Today: FB has been trading actively on the upside before the open, suggesting two days of sideways consolidation will override the need for a correction and pave the way for a move across $35 and higher.
I DO NOT OWN, NOR HAVE I EVER OWNED APPLE OR FB.
ECONOMY:
Huge week for reports on the economy plus more insight on Fed policy coming out of the FOMC meetings Tuesday and Wednesday.
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com
MONDAY:
Pending Home Sales Ix. (10:00) Proj.: minus 1.4 pct
Dallas Fed. Mfg. Svy. (10:30) Proj.: 6.4 for July unchanged from June
TUESDAY:
FOMC meeting begins
ICSC Goldman Store Sales (7:45)
S&P Case-Shiller Home Price Ix. 9:00 Proj.: +1.3 pct m/m May, +12.3 pct y/y
Consumer Confidence (10:00) Proj.: 81.0 July vs. 81.4 June
WEDNESDAY:
ADP Employment (8:15) Proj,: 179,000 July
GDP – Q2 (8:30) Proj.: +1.1 pct annual rate
Employment Cost Ix.(8:30) Proj.: +0.4 pct Q2
Chicago PMI (9:45) Proj.: 54.0 July vs. 51.6 in June vs. 58.6 May
FOMC meeting announcement (2:00 PM) QE commentary possible
THURSDAY:
Jobless Claims (8:30) Proj.: 345,000 for 7/27 vs. 343,000 7/20
PMI Mfg. Ix. (8:58) Proj.: 53.1 July
ISM Mfg Ix. (10:00) Proj.: 53.1 July vs. 50.9 in June and 49.0 May
Construction Spending (10:00) Proj.: +0.4 pct June
FRIDAY:
Employment Situation (8:30) Proj.: 175,000 July (nonfarm), 187,000 (private), Unemployment rate 7.5 pct
Personal Income/Outlays 8:30) Proj,: +0.4 pct June
Factory Orders (10:00) Proj.: +2.3 pct June vs. +2.1 pct May
George Brooks
“Investor’s first read – an edge before the open”
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The writer of Investor’s first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.
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