On October 20, with the DJIA at 15,676 (S&P 500: 1,722), I urged readers to “Raise Cash for an October Opportunity,” citing mounting uncertainties associated with a government shutdown, failure to raise the debt ceiling, and corporate earnings.
We are on track for such an opportunity. It will be prompted by news and most likely be accompanied by a “gap” in prices at the open.
With its 8-day, 3.2% drop in the blue chip DJIA and more downside today, the stock market is beginning to discount a shutdown in the government. While shutdowns have not severely impacted stock prices in the past, this one coincides with a pressing need to raise the nation’s debt limit, or face default for the first time in our nation’s history.
The 2013 budget expires today. If a new bill is not agreed on, the United States will face its first government shut down in 17 years with only “essential” services funded – those related to national security, public safety and those dictated by permanent law, such as Social Security.
A shutdown and the failure to raise the debt limit are two different things. Generally, the U.S. government is unable to incur new spending commitments once it shuts down. If the debt ceiling is not raised it cannot issue new debt, which is its primary means for paying bills already incurred.
While a deal to avoid a shutdown would trigger a rally, a failure to raise the debt ceiling enabling the U.S. government to pay obligations already incurred (default), would result in a plunge in financial markets here and abroad.
Treasury Secretary Jacob “Jack” Lew expects the deadline to fall on October 17. Common sense suggests that will be averted, but the political landscape today differs from that in 1995 when the two major parties were not nearly as polarized as they are today. At the time, President Clinton was facing re-election while President Obama is not today.
This can get ugly.
CONCLUSION:
A compromise on a shutdown would trigger a brief rally, but the jousting over raising or not raising the debt limit will dictate the direction of the stock market this month.
Just the partisan ugliness will depress stock prices, however failure to raise the ceiling, resulting in a default on paying certain bills will trigger a free-fall……….BUT an incredible buying opportunity.
Default is unthinkable, yet who knows with the unyielding ideological partisanship in Washington we have today.
I suspect, the BIG money will have something to say about all this. While these folks like juicy opportunities, there simply is too much else to lose by default.
TODAY:
Beware of false rallies. One word by a top level pol. could trigger a rally that fails by the end of the day.
Gutsy traders may opt to buy at today’s depressed prices in anticipation of an 11:59 p.m. offer by the U.S. House tonight to avert a shutdown. That would trigger a gap open tomorrow, but without reason to expect the debt ceiling to be raised before the October deadline projected at the 17th, I don’t see that rally having legs,
Be aware that we are fast approaching the “Best time to own stocks”* The DJIA can get down to 15,076 (S&P 500: 1,670) today.
While you are worrying about the “what ifs,” it would be a good idea to prepare a list of stocks you want to own beyond all this mess.
Investor’s first read– an edge before the open
DJIA: 15,258
S&P 500: 1,691
Nasdaq Comp.3,781
Russell 2000: 1,074
Monday, Sept. 30, 2013 (9:16 a.m.)
TECHNICAL OBSERVATION – STOCKS: NEW FORMAT
I am streamlining this format in order to include more stocks.
The following are observations based solely on technical analysis and don’t give consideration to fundamentals or changes in brokerage ratings, earnings guidance/projections, breaking news, which can have an immediate impact on stocks, justified or not. The object here is to sense forces of supply and demand for the stock which affect support and resistance levels frequently.
These are not buy or sell recommendations, and are not stocks I have recommended.
STOCKS OF GENERAL INTEREST:
Note: Currently, there is the potential for sharp moves in stocks in response to developments in Washington. Under these conditions, support/resistance levels are especially suspect.
Apple (AAPL: $482.07) Positive.
Another low-volume day, this time down in a soft market. Stock correcting 5-day, 40-point move. New support is $480. Could spike down to $476. Break above resistance between $489 and $492 raises odds AAPL crosses $500 again.
Facebook (FB: $51.10) Positive.
No signs of tiring. Support $50. Mid-50s possible.
IBM (IBM: $186.99)Positive. Broke support at $189 dropping it to the $186- $187 area. Should find support between $185 – $186. Resistance now $189.
Pulte Homes (PHM: $16.57) Positive.
Should have gotten bigger boost from 8% jump new home sales in August. Needs to hold above $16.50. Needs high volume push across $17.50 to reinforce its positive status.
First Solar (FSLR:$40.74)Neutral, on verge of turning positive.
Breakout above $41 got thrown back. Move across $42 turns stock positive. Support is $40.25. Stock currently featuring sharp moves up followed by a sharp correction but not enough to exceed the prior low. Signs of a aggressive, but patient buyer
Target (TGT: $63.97)Negative.
No change from Friday which was: Ugly turned uglier Wednesday, but a spike down on heavy volume during the day may have begun to clear the air for this giant retailer. What does this say for retailing? For the economy? Serious buying needed to reverse a negative pattern or the Aug. – Sept. attempt to base becomes a mere stop-over en route to lower price. Support at $63 must hold. Resistance starts at $63.50
Hewlett-Packard (HPQ: $21.16) Negative. Stock probing for support in an irregular basing formation. Not a pretty picture, but giving any interested buyer plenty of time to get on board IF fundamentals justify it. Break below $21 suggests drop to $19.
EBAY (EBAY: $55.78)Positive.
Got big, high volume breakout above $55.60, which becomes new support.. Could slip a bit lower to $55.30
Amazon (AMZN: $316.01) Positive.
Break of $317 support no cause for alarm.. Move across $320 indicates potential for near-term move to $325 – $330.
STOCKS SHOWING ATTRACTIVE or UGLY TECHNICAL PATTERNS
ALSO NEW: This is intended to call attention to unusual technical activity. Will not be followed daily. I plan to introduce this feature in the near future, even hoped to do so today, but opting for a better time in light of a high risk environment associated with the possible shutdown and debt ceiling crisis.
(NOTE:I do not own, nor am I short AAPL, FB, IBM, PHM, FSLR ,TGT, HPQ, EBAY, AMZN.)
ECONOMIC REPORTS: Another key week for reports on the economy.
The big news will be on jobs with the ADP report coming Wednesday and Employment Situation report coming Friday before the market opens.
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com – www.mam.econoday.com
MONDAY:
Chicago PMI (9:45) PROJ.: Index 54.4 for Sept. vs. 53.0 Aug.
Dallas Fed Mfg. Ix.:(10:30) PROJ.: Index for Sept. 6.0 vs. 5.0 for Aug.
TUESDAY:
ICSC Goldman Store Sales (7:45)
Gallup US ECI (8:30): An Economic Confidence Index encompassing what the economy is doing now and what it is perceived to be doing in future.
PMI Mfg. Ix.: (8:58) PROJ.: . Ix. for Sept. 52.9 vs. 52.8 Aug.
ISM Mfg. Ix. (10:00) PROJ.: Ix. for Sept 55.0 vs. 55.7 Aug.
Construction Spending(10:00) PROJ.: Aug. +0.4 pct. vs. +0.6 pct. Jly.
WEDNESDAY:
ADP Employment Report (8:15) PROJ.: Private payrolls Sept. 180,000
Fed’s Bernanke Speaks (3:00)
THURSDAY:
Jobless Claims (8:30) PROJ.: For week 9/28: 313,000
Bloomberg Consumer Comfort Ix. (9:45)
Factory Orders (10:00) PROJ.: Aug. +0.3pct. vs. drop of 0.3 pct. Jly.
ISM Non-Mfg. Ix. (10:00) PROJ.: Sept Index 57.0 vs. 58.6 in Aug.
Fed’s Fisher speaks (12:30)
Fed’s Powell speaks (12:45)
FRIDAY:
Employment Situation (8:30) PROJ.:Sept. 184,000 vs. 169,000 Aug., Unemployment 7.3 pct.
Fed’s Kocherlakota speaks (1:45)
RECENT POSTS: 2013
Sep 16 DJIA 15,376 “No Taper ! No Summers ! Selling Opportunity ?
Sep 17 DJIA 15,494 “No Taper= Rally Followed By a Sell off ?
Sep 18 DJIA 15, 529 “Sell the Taper Rally ?”
Sep 19 DJIA 15,676 “Raise Cash for Better Opportunities”
Sep 20 DJIA 15,636 “Raise Cash for October Opportunity”
Sep 23 DJIA 15,451 “Can a Normal Correction Become a Bigger One ?”
Sep 24 DJIA 15,401 “Opportunity Looms as Storm Clouds Form”
Sep 25 DJIA 15,384 “Brinkmanship Starts – What to Do”
Sep 26 DJIA 15,237 “Street Not Worried – Yet Should You Be ?”
Sep 27 DJIA 15,328 “Prepare for an October Buying Opportunity”
*Stock Trader’s Almanac – New edition shortly off the press.
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. Brooks may buy or sell stocks referred to herein.
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