Is Market Now Vulnerable to Bad News?

George Brooks  |

WednesdayAugust  20 , 2014     9:16 a.m.  BEFORE the OPEN


    I doubt the minutes of the July 29-30 FOMC meeting released today at 2:00 will have much impact on stock prices, but Fed Chief Janet Yellen’s comments at 10:00 a.m. Friday from the Fed’s annual economic symposium in Jackson Hole, Wyoming  may if she suggests interest rates will rise as soon as Q1 of 2015.

    Additionally, ECB President Mario Draghi will comment on the stalled economies in Europe, a potential negative. Columbia University professor and Nobel Laureate Joseph Stiglitz was quoted today as saying the austerity policies in Europe  to address its debt crisis  have been a “dismal failure.

   We must assume we are still in a news sensitive market, though a rising market suggests otherwise.

    This is where it gets tough. The market has rebounded sharply after news turned positive a week ago putting new buying at risk “if” news in Ukraine or out of Jackson Hole is seen as bearish. Risk of  not buying is obvious – investors miss opportunities to make money. It is a decision that must be based on one’s tolerance for risk, just another negative of a news whipsaw market.


  Support today is DJIA: 16,856; S&P 500: 1,974; Nasdaq Comp.: 4,519

  Resistance today is DJIA: 16,978; S&P 500: 1,988; Nasdaq Comp.: 4,543. 

  Risk of the news whipsaw still exists.  

Investor’s first readDaily edge before the open

DJIA: 16,919

S&P 500: 1,981

Nasdaq  Comp.4,527

Russell 2000:    1,162



    Fed Chief Janet Yellen will address the annual Kansas City Fed’s economic symposium at Jackson Hole, Wyoming, at 10:00 a.m., Friday. There is no reason to expect any unpleasant surprises.

     European economies are currently sluggish, especially Germany’s, and that is partly due to sanctions on Russia for its incursion of Crimea.  Expect ECB President Mario Draghi to shed light on conditions abroad. 

     INTEREST RATES: On numerous occasions, I have reminded readers that stock prices can rise along with interest rates, but to a point where higher rates draw money away from stocks to bonds and where higher rates adversely impact the economy. Realistically, that point must be a lot higher than the zero-based interest rates existing today. I conceded that the stock market would take a brief hit when a move to higher rates was perceived by the Street, but stabilize before moving higher.

    A recent study by Andrew Garthwaite, chief equity strategist for Credit Suisse concludes just that. Since 1977, he found the S&P 500 peaked no earlier than four months prior to the Fed’s first rate increase, but gained as much as 4 percent in the six months after the first increase. He notes, that while rate rises have increased volatility in the stock market, they did not mark the end of the bull market.



    The DJIA has advanced 160% (the S&P 500: 194%) through August 14.

    But the base point for calculating that advance was March 2009 from DJIA 14,279 (S&P 500: 666) and came after an unprecedented bombardment of  unthinkable events, including failures and bailouts of  the Street’s most prestigious names: AIG, Lehman Bros., Merrill, Wachovia, Washington Mutual, F.Mae and F. Mac, etc. and a global scramble for survival. A total meltdown appeared imminent between September 2008 and March 2009, panicking investors and  crushing stock prices beyond reason.

    The final bear market plunge from DJIA 9,000 (S&P 500: 970)  to DJIA 6,440 (S&P 500: 666),  a drop of  28.4% and 31.3% respectively, was driven by pure hysteria.

    While I am stretching the rules of technical analysis a bit here, there is merit in the concept that  the final plunge was so emotionally charged, a more reasonable base for the bear market bottom would be DJIA 9,000 (S&P 500: 970) where the market began to fall apart in October 2008.

    Based on that assumption, the DJIA would have advanced 85% (S&P 500: 101%) through August 14, 2014, not 160% and 194% respectively. Put another way, that whole panic zone serves as the base for a bear market bottom, not the actual lows, owing to the extreme nature of events that produced the crunch.

    Conclusion: While not cheap, stocks are not as over priced as the doomsters think.



Depends on who you ask. A.Gary Shilling, publisher of  “INSIGHT” * challenged government press releases in an August 4, Special Report, “After the Government Report Releases.”

    Among the first to warn readers in advance of the Great Recession, Shilling  was quick to point out that the July 30, Q2 GDP report of an annualized gain of 4.0% was misleading with 1.66 percentage points attributed to a change in inventories, bringing the  growth number down to 2.3%, a rate he feels is not great enough to “spawn meaningful growth in wages and labor income.”  Excess inventories that are not worked off by sales  penalize future production.

    He attributes last week’s plunge in the stock market to the Street’s concern that the economy is not rebounding.

    If he is right, the question arises, Will the Fed have to revise its taper schedule ?




      Big week for reports on housing.  FOMC meets, no press conference planned.

      For detailed analysis of both the U.S. and Foreign economies along with charts, go Also included is an explanation of each indicator. If you want to know when the next Employment report or any other key report will be released that info is also there under “event release date.”


Housing Market Ix. (10:00): Index jumped to 55 in Aug. from 53 inJuly


ICSC Goldman Store Sales (7:45): Down 1.3 pct. in Aug. 16 week vs. drop of 1.3 pct prior week

Consumer Price Ix. (8:30): Up 0.1 pct in July vs. gain of 0.3 in June

Housing Starts (8:30): CORRECTION: Starts rose in 15.7 pct. July to 1.093 million units from 0.945 million in June.


MBA Mtge Purchase Apps/Refi’s (7:00)): Down 0.4 pct. in Aug. 15 week; Year/year down 11.0 pct.  Refi’s (55 pct. of apps were up 3.0 pct. in same week

FOMC Minutes from July 29-30 FOMC meeting (2:00):

(No FOMC meeting scheduled for August, but Yellen speaks Friday 10:00 a.m.)


Jobless Claims (8:30):

PMI Mfg Ix. Flash rpt (9:45):

Philly Fed Svy (10:00):

Existing Home Sales (10:00):

Leading Indicators (10:00):


No reports      



July 30   DJIA   16,912  Market on the Verge of Big Move ?

July 31   DJIA   16,880  Huge Test for Bulls

Aug.  1   DJIA  16,563  False Alarm, or ………

Aug.  4   DJIA   16,493  Trader’s Buy, but Risks are High.

Aug.  5   DJIA   16,569  Bulls “Must”  Step In Now, or…….

Aug.  6   DJIA   16,429  Is The Economy Really Rebounding ?

Aug.  7   DJIA   16,443  Rally to Give Investors a Good Read on Near-Term

Aug.  8   DJIA   16, 368 News Whipsaw = Increased Volatility

Aug. 11  DJIA   16, 553 Rebound to Good News – How Far ?

Aug. 12  DJIA   16,569  News Whipsaw – Watch Your Back !

Aug. 13  DJIA   16,560  Rally ?  Be Very Careful !

Aug. 14  DJIA   16,651  Better Off Now than in October 2007 ?

Aug. 18  DJIA   16,662  All Eyes on Fed at Jackson Hole Thursday

Aug. 19  DJIA   16,838  Increasing Speculative Fever


A Game-On Analysis,  LLC publication

George  Brooks

“Investor’s first read – a daily edge before the open”

Investor’s first read, is a Game-On Analysis,LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  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. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. 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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