Market Awaits a Fed QE Exit Strategy

George Brooks |

WednesdayJune  18, 2014      9:05 a.m.  Before the open

SUMMARY:   

    Yesterday’s support  and resistance levels for the DJIA, S&P 500 and Nasdaq Comp. were tested and held. 

    As expected, the bulls stepped in to buy softer prices at the open tracing out a positive, though restrained, bullish pattern.

    The market is surprisingly indifferent to the crisis in Iraq, but delayed reactions are not unusual as the Street weighs  its options.

     Minutes from this week’s FOMC meeting will be released at 2:00 p.m. today followed by Fed chief Janet Yellen’s news conference at 2:30 where she will announce  a new set of forecasts for employment, economic growth and inflation.

     The Street has been worrying about a hike in interest rates.  That’s great. By the time one is foreseeable or announced, the market will have discounted it.

     After an initial jolt, the stock market can rise along with interest rates, especially if the latter starts near zero. Clearly we have had frothy bull markets with higher and rising interest rates.

    What is bearish is when the Fed actively attempts to cool the economy. Obviously, we are not there yet.

     The Fed is currently in transition from an unprecedented policy of accommodation to one of normalcy.  Unfortunately, the Street is spoiled; it wants everlasting  accommodation, an ongoing  blankie.

    Worth consideration is the positive impact a reasonable return on money market funds, CDs etc. would have on the economy, as well as an increased willingness of banks to lend.

TODAY:

    Resistance today is a smidge above yesterday’s close. A break above those levels can take the DJIA to 16,879; the S&P 500 to 1,949; and the Nasdaq Comp. to  4,362.

    Support today is DJIA: 16,781; S&P 500: 1,939; Nasdaq Comp.:4,328.

   Warning: A drop below DJIA: 16,720; S&P 500: 1930 and Nasdaq Comp. 4,298 would  increase the likelihood of another leg down.

 

Investor’s first readDaily edge before the open

DJIA:  16,808                                   

S&P 500:  1,941

Nasdaq  Comp.: 4,337

Russell 2000:    1,176

Quadruple Witching Friday looms this week when stock index futures, stock index options, stock options and single stock options expire on the same day. Stock options expire on 3rd Friday each month.  All four expire on the 3rd Friday in March, June, September and December.

    This even used to have a big short-term impact of stocks, not so much anymore.  Even so,  “heads up !”

EUROPE:

    The European Central Bank’s cut of its benchmark interest rate and announcement to employ additional measures to stimulate European economies  stands to help the U.S. economy, as well.  It did little to boost stock markets abroad which are trading at six-year highs, suggesting the move was already discounted. Even so, let’s consider it a  positive.

 

TECHNICAL ANALYSIS of 30 DOW JONES INDUSTRIALS

(UPDATED ANALYSIS)

    At key junctures, I technically analyze each of the 30 Dow industrials seeking a reasonable near-term support and a more extreme support level, 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.

    As of June 12, the reasonable support for the DJIA is 16,573, the more extreme support level is 16,443 and the short-term resistance is 16,896.

Note: My daily support/resistance  levels are more short-term oriented.

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THIS WEEK’s ECONOMIC REPORTS:

    Look for a heavier schedule of releases on the economy this week, including a press conference by Fed chief Janet Yellen at 2:30 following the release of the minutes from the FOMC meeting Wednesday.

      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:

Empire State Mfg Ix. (8:30): Hit a 4-yr. high at 19.28 May vs 19.01 in Apr. New orders also hit a 4-yr. hi at 18.36

Industrial Prod. (9:15): May up 0.6 pct. after a drop of 0.3 pct. (revised) in Apr. Capacity utilization is 79.1 vs. 78.6

Housing Mt Ix. (10:00): Index jumped to 49 from 45 in May which is promising, though “traffic” remains in a slump at 36.

TUESDAY:

FOMC meeting begins

ICSC-Goldman Store Sales (7:45): Sales up 0.4 pct. for the 6/14 week. Year/year is +3.1 pct. vs. +3.0 pct.

Consumer Price Ix. (8:30): Up 0.4 pct. May vs. +0.3 pct. Apr.  X-food/energy up 0.3 pct. May vs. +0.2 pct. Apr..

Housing Starts (8:30): Down 6.5 pct. May after gain of 12.7 pct. Apr.

WEDNESDAY:

MBA Purchase Apps (&:00): Apps plunged 9.2 pct. in the June 13 week; Refis dropped 13.0 pct. (ugh!)

FOMC meeting  announcement(2:00)

Fed. press conference – Yellen (2:30):

THURSDAY:

Quadruple Witching Friday

 

Jobless Claims (8:30):Philly Fed Svy (10:00):

Leading Indicators (10:00):

FRIDAY:

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RECENT POSTS:

June 2    DJIA   16,717 Decision Time for Stocks ?

June 3    DJIA   16,743 Economy “Must” Accelerate,  or…

June 4    DJIA   16,722 Correction in Stocks Without Robust Economic Rebound

June 5    DJIA   16,737 Bulls Must Pick It Up, or Lose the Ball

June 6    DJIA   16,836 Easy Does It ! Dow 20,000, But Not in Straight Line

June 9    DJIA   16,924 Stock Market Breakout – Now What ?

June 10  DJIA   16,943 Greed/Fear Ratio, Not P/Es, Drive the Market

June 11  DJIA   16,945  Watch Trampoline Effect for Stocks

June 12  DJIA   16,843  Sideways, 3-Month Trading Range Beginning ?

June 13  DJIA   16,734 Iraq Crisis to Create Buying Opportunity

June 16  DJIA   16,775 Uncertainty – A Menace t Stock Prices Near-Term

June 17  DJIA   16,781 Decision Day for Stock Prices – Near-Term

A Game-On Analysis,  LLC publication

George  Brooks

“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 investment advice or 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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