Friday, July 25, 2014 9:08 a.m. BEFORE the OPEN
SUMMARY:
The market has ranged sideways for most of July, with a slight upward bias.
Institutions are digesting Q2 earnings and must like what they see, or the market would be going south in a hurry.
Do not rule out a three to four day slide before a nice leg up. Unless they can justify a lower market, money managers must buy stocks for client portfolios. Any sale just creates cash that must be re-invested even if it means reaching for stocks.
This has been a very unappreciated bull market. There are still a lot of disbelievers. I blame the unfettered pre-occupation of the press with negativity. Good news doesn’t sell. Media market share is only gained with a live story about something that has gone wrong, could go wrong, or attracts attention, however undeserved.
The truth is that our economy has recovered from the edge of a total meltdown.
TODAY:
Looks like another slow one. So far, this has been a “step-up” market with minor three-four day corrections followed by a rally to new highs. This kind of teaser action breeds increased speculation setting the stage now for a brief surge before a bigger correction leads to a September/October buying opportunity.
Much can happen between now and the fall. What’s important is that investors look ahead to the possibility of a 4% to 6% correction this fall so they have locked in profits in advance and raised cash reserves to take advantage of it when and if it occurs.
It’s too early to project that technically – this is just an alert.
Support today is DJIA: 17.056; S&P 500: 1,984; Nasdaq Comp.: 4,451
Resistance todayis DJIA: 17,112; S&P 500: 1,991; Nasdaq Comp.: 4,478
Investor’s first read– Daily edge before the open
DJIA: 17,083
S&P 500: 1,987
Nasdaq Comp.:4,472
Russell 2000: 1,1156
TECHNICAL ANALYSIS HAS CHANGED:
Changes have occurred over the years in technical analysis.Volume can signal a turn in direction rather than continued momentum. Breakouts can be fake-outs. Classic resistance and support levels are often broken momentarily as if intentionally triggered to provide someone with an opportunity to sell or buy in-size.
Chart patterns, are nevertheless readable, if investors adjust for these changes. Stocks are impacted by multiple option/futures strategies, high speed trading, hedge funds, etc., but it still boils down to money in and money out.
The biggest technical risk is the “gap” up or down, featuring an abrupt and major change in price with no trading between the last price and next price. This happens most frequently as a result of the Street’s reaction to earnings reports. There is little investors can do to anticipate or protect themselves from this hazard except diversification.
A report doesn’t have to be disappointing for a stock to take a bit hit. That can happen if earnings don’t exceed projections by enough. Gaps down tend to sentence a stock to months of listlessness.
Reading charts is a matter of interpretation, a sensing of the balance or imbalance between buyers and sellers. I don’t think this can be quantified. Patterns that are too consistent attract so many new followers, that they become neutralized.
THE FED:
We will hear more cautionary comments from the Fed going forward in an attempt to ease an interest rate hike when its reality hits early next year. The Fed does not want speculative fever to run rampant prior to the rate increase.
Her comments harpooned small biotech, momentum stocks and the Russell 2000, though more than likely just created a buying opportunity.
Parallels to Fed Chief Alan Greenspan’s 1996 “irrational exuberance” – dot-com comments were immediately drawn, but rejected when the Street realized the bubble didn’t burst until January 2001 four years later.
The Fed’s “easing in” policy is bad news for those who want the feeding frenzy to continue unabated, but good news for investors who opt for a more stable market and an inevitable crunch instead of crash.
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TECHNICAL ANALYSIS of 30 DOW JONES INDUSTRIALS
(UPDATED ANALYSIS: July 21)
At key junctures, I technically analyze each of the 30 Dow industrials seeking a reasonable near-term support and a more extreme support leyel, as well as a short-term resistance level. By technically studying the balances of buying and selling in each stock, then converting that data back to the DJIA using the “divisor” (0.1557159) I can get a better reading on the average itself. The DJIA is a price-weighted average and subject to distortion by higher priced issues.
I ran my analysis again following the Monday, July 21 close and concluded the near-term upside for the DJIA is 17,333 a reasonable downside is 16,932 and more downside 16,865.
My analysis run last week July 1 projected near-term resistance for the DJIA at 17,109 where it stalled last week.
Note: My daily support/resistance levels are more short-term oriented.
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THIS WEEK’s ECONOMIC REPORTS:
For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.mam.econoday.com. 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.”
MONDAY:
Chicago Fed Nat’l Activity Ix. (8:30): June’s index slipped to 0.12 from 0.21, reflecting a zero reading in June’s production component.
TUESDAY:
ICSC Goldman Store Sales (7:45): Dropped 0.4 pct. in July 19 week from prior week’s gain of 0.4 pct.
Consumer Price Ix. (8:30): June CPI up 0.3 pct vs May’s increase of 0.4 pct.
FHFA House Price Ix. (9:00):Rose 0.4 pct. in May – year/year slipped to +5.5 pct. from +6.1 pct.
Existing Home Sales (10:00):Rose 2.6 pct. in June vs. gain of 5.4 pct. in May
Richmond Fed Mfg Ix. (10:00): Index up 3 pts. To 7 in July
WEDNESDAY:
MBA Purchase Apps (7:00): Up 0.3 pct. in July 18 week after drop of 8.0 pct. in prior week. Refi’s up 4.0 pct.
THURSDAY:
Jobless Claims (8:30): Dropped 19,000 to 284,000 in the July 18 week to lowest level since 2006
PMI Mfg. Flash Ix. (9:45): June index was 56.3 vs. a mid-month reading of 58.8
New Home Sales (10:00): Slumped to 406,000 in June from 442,000 in May.
Kansas City Fed Mfg. Ix. (11:00): July index was 9 up from 6 in June.
FRIDAY:
Durable Goods (8:30): Rose 0.7 pct, in June after a drop of 1.0 pct. in May.
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July 22 DJIA 17,051 Significance of Yellen’s Warning
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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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