Just a Rally, or End of the Correction ?

George Brooks |

stock market now, stock market today, DJIA today, S&P 500 today, nasdaq today, stocks to buy nowWednesday, October  22, 2014     9:02 a.m.  DAILY - BEFORE the OPEN

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Daily: Boiling down fundamental, technical, economic, monetary, fiscal, psychological, and seasonal data into a quick read.

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    The five day rally that started last week has been sustained by Q3 earnings, but was triggered last Thursday by the Fed’s James Bullard who hinted that the Fed could delay the taper, or an extension of bond purchases beyond the deadline this month. Hopelessly addicted to QE, the Street rushed in to buy.

    The big question now is: what if the Fed doesn’t extend bond purchases at its FOMC meeting next week (Oct. 28-29)?

    Such a decision would have to be accompanied by a Yellen press conference, but none is scheduled. If one is scheduled, it would be a tipoff that big news is forthcoming.

    There is no FOMC meeting scheduled for November.

    With known negatives (Europe’s slump, ISIS, Russia, Ebola) off front page coverage for now, Q3 earnings have the spotlight and are the driver for stock prices.

    Next week we will see just how  much of  the market’s current strength is expectation of a Fed change in policy.

    Actually, a decision to extend bond purchases would send a disturbing message to the Street, that all is not well in the economy and/or that deflation is a bigger problem than seen currently.  

    Worth noting is, part of the current buying is in anticipation that the “Best Six Months” for owning stocks (Nov. 1 to May 1) will kick in late this month.

TODAY:

    Obviously, the Street likes what it is seeing in Q3 earnings so far. While the major market averages are still well below their September peak, the rebound in 17 of the 30 DJIA stocks is dramatic enough to indicate the low for this correction in these stocks has been seen.

   The big hurdle for the market would be DJIA: 17,000; S&P 500: 1,970; Nasdaq Comp.: 4,525. These averages can hit a wall before then as stocks enter areas that produced selling  one to two weeks ago (resistance).

    That suggests a risk in chasing stocks that have rebounded sharply. A look at a longer term price chart of the major market averages hints at a “greenstick” , fracture to the five and a half year bull market, but not a “break.”  That would take a drop below the Oct. lows of DJIA 15,855; S&P 500: 1,820; Nasdaq Comp.:4,212.

    Any movement up from here should be less vertical and more  sideways-to-up (45 degree angled).

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Investor’s first readDaily edge before the open

DJIA: 16,614

S&P 500:  1,941                               

Nasdaq  Comp.: 4,419

Russell 2000: 1,112

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FOMC MEETING Oct. 28 – 29:  WILL FED EXTEND BOND PURCHASES ??

    Last  week, James Bullard, a non-voting Fed official, stepped in suggesting bond purchases could be extended which is huge, but only if it does so. When? There is no press conference scheduled after its FOMC meeting next week, Oct. 28.* If they schedule one, odds strongly favor a special announcement indicating if it plans to extend bond purchases, which would be a tipoff. If the Fed is going to do this it will have to this month or in December, since there is no meeting scheduled for November.

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BULL MARKET RETRACEMENT:

    A One-third retracement of the five and a half year bull market would take the DJIA down  to 13,714 (S&P 500: 1,568) and it can get there in face of the right negatives. A one-third retracement of any major move is not out of the question, just not the norm.

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TECHNICAL ANALYSIS EACH of 30 DOW INDUSTRIALS (10/21 close)

By technically analyzing each of the 30 Dow industrials then using the Dow “divisor” to convert the data back into the DJIA, I can get a better read on what is primary support and a secondary support.

  As of the 10/8 close: Resistance 16,935; Primary Support: 16,250; and Secondary Support: 16,080.

   NOTE: These calculations generally hold for longer periods of time but need to be changed when the market is hit with excessive volatility.

   The resistance and support levels listed daily may differ, since they are shorter term.

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INTERNATIONAL TENSIONS:

   Ukraine/Russia – Quiet for now, but has the potential to get uglier.

   ISIS/Iraq/Syria – A Euro/Mid-East coalition has formed to counter ISIL. A full-blown bombing mission has been undertaken, which stands to be ongoing. Psychologically, that stands to play well in America, which has been warned of future terrorist activity. The good possibility of a major war resulting must be considered.

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THIS WEEK’s ECONOMIC REPORTS:

     For detailed analysis of both the U.S. and Foreign economies along with charts, go to www.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.”

 

TUESDAY:

ICSC Goldman Store Sales (7:45): Down 0.3 pct. in 10/18 week;  Year/year is +2.1 pct.

Existing Home Sales (10:00): Up 2.4 pct. to an annual rate of 517 million units.  Year/year is down 1.7 pct..

WEDNESDAY:

MBA Purchase Apps/Refis (7:00) Apps up 11.6% vs/ increase of 5.6% a week ago

Consumer Price Ix (8:30): Sept. CPI up 0.1 pct., Ex food/energy is up 0.1 pct.

THURSDAY:

Jobless Claims: 8:30):

Chicago Fed Nat’l Activity Ix (8:30):

FHFA House Prices (9:00):

PMI Mfg Ix. (9:45):

Leading Economic Inds. (10:00):

Kansas City Fed Mfg Ix. (11:00):

FRIDAY:

New Home Sales (10:00):

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RECENT POSTS:

Oct. 8     DJIA  16,719  Extreme Volatility = Risk, but Opportunity

Oct. 9     DJIA  16,994  Bad News is Good News ?  Pure Insanity ! 

Oct. 10   DJIA  16,544  Last Man Standing – Bear – or Bull ?

Oct. 13   DJIA  16,544  A Dangerous Rally – Dow 16,000 this Week ?

Oct. 14   DJIA  16,321  Technical Bounce  - Easy Does It !

Oct. 15   DJIA  16,315  Risk: DJIA 14,666 (-1,655 pts.) by Oct 31

Oct. 16   DJIA  16,141  Rally Today Off Wednesday Lows Risky

Oct. 17   DJIA  16,117  What If the Fed Doesn’t Delay Taper ?

Oct. 20   DJIA 16,380   Critical Week for Bulls

* Stock Trader’s Almanac

George  Brooks

A Game-On Analysis,  LL

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

Brooks007read@aol.com

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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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