At some point, the Street will begin to wean themselves off the Fed’s teat in favor of an acceleration in the economy. After the worst recession/bear market since the 1930s, who can blame them for not wanting to break from the Fed’s safety net ?
But it has been more than four years now, the market is up 150% and the economic recovery has demonstrated resilience. It’s time.
This week is loaded with key economic reports and commentary coming out of the Federal Open Market Committee (FOMC).*
So far we have a negative economic report out of the Fed’s Dallas district, though it does not appear to be worth concern. Pending home sales dropped in July, but that blip may be due to a bump in mortgage rates. A rise in rates may discourage some buyers, but it may accelerate the decision of others to buy for fear that higher rates will be encountered in the future. (see schedule for reports below)
I expect a mix of opinions on taper coming out of the FOMC meeting after 2 p.m. tomorrow. That will be preceded by the ADP Employment report at 8:30 a.m..
The biggie is the Employment Situation report at 8:30 a.m. Friday, where projections for new hires in the private sector run close to 190,000. A number nort of 200,000 would indicate the Fed is on track to begin taper in the fall, probably down to $65 billion a month from $85 billion.
TODAY:
The market acts like it WANTS TO RUN, though there is some resistance between DJIA 15,560 and 15,600. Support is DJIA 15,420 (S&P 500: 1,676).
Given all the reports on the economy and commentary out of the FOMC, this stands to be a key week for the near-term direction of stock prices.
Investor’s first read– an edge before the open
DJIA: 15,521.97
S&P 500: 1,685.33
Nasdaq Comp.: 3,599.14
Russell 2000: 1,040.66
Tuesday, July 30, 2013 (9:10 a.m.)
TECHNICAL OBSERVATION – STOCKS:
Alert: I have successively accomplished my goal of helping readers navigate through the plunges in both AAPL and FB and subsequent recoveries. I may soon drop coverage and either pick up other fallen angels, or begin the technical tracking of stocks on the move.
Apple(AAPL: $447.49)
While Q2 revenues were flat and earnings down 20%, the latter “beat” the Street’s projections. iPhone sales were the surprise, up 20% vs. a year ago.
Analysts will be revisiting estimates and we can expect some changes in ratings. With a double bottom “in” at $385, AAPL can be expected to attack resistance between $460 and $470, but not in a straight line.
Today: Both Friday and Monday market action was positive. AAPL’s drop to $434.34 was quickly reversed and buying picked up at the close. Support is $444.75, Resistance is beatable at $450, with $455 the next target.
FACEBOOK (FB – $35.43)
FB shares soared Thursday as Q2 revenues of $1.81 billion beat Street projections of $1.62 billion big-time. Net income more than doubled in the quarter to $333 million
from $157 million a year ago. Its monthly active users increased 21% over a year ago. Mobile ad sales accounted for 41% of total revenues up from 30% in Q1.
Today: FB broke out of a two-day consolidation yesterday en route to higher prices. Its report must have jolted bears and sent bulls back to the drawing board to revise future prospects.
I DO NOT OWN, NOR HAVE I EVER OWNED APPLE OR FB.
ECONOMY:
Huge week for reports on the economy plus more insight on Fed policy coming out of the FOMC meetings Tuesday and Wednesday.
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com
MONDAY:
Pending Home Sales Ix. (10:00) Declined 0.4% in July to 110.9, but signed contracts are still up 10.9% y/y.
Dallas Fed. Mfg. Svy. (10:30) July’s index dropped to 4.4 from 6.5, but is still generally seen as positive.
TUESDAY:
FOMC meeting begins
ICSC Goldman Store Sales (7:45)
S&P Case-Shiller Home Price Ix. 9:00 Proj.: +1.3 pct m/m May, +12.3 pct y/y
Consumer Confidence (10:00) Proj.: 81.0 July vs. 81.4 June
WEDNESDAY:
ADP Employment (8:15) Proj,: 179,000 July
GDP – Q2 (8:30) Proj.: +1.1 pct annual rate. GDP has undergone a major revision going back to 1929 so expect some distortions. The revision will reflect a minor reduction in federal spending and debt as a percent of GDP. Q2 estimates may lack relevence.
Employment Cost Ix.(8:30) Proj.: +0.4 pct Q2
Chicago PMI (9:45) Proj.: 54.0 July vs. 51.6 in June vs. 58.6 May
FOMC meeting announcement (2:00 PM) QE commentary possible
THURSDAY:
Jobless Claims (8:30) Proj.: 345,000 for 7/27 vs. 343,000 7/20
PMI Mfg. Ix. (8:58) Proj.: 53.1 July
ISM Mfg Ix. (10:00) Proj.: 53.1 July vs. 50.9 in June and 49.0 May
Construction Spending (10:00) Proj.: +0.4 pct June
FRIDAY:
Employment Situation (8:30) Proj.: 175,000 July (nonfarm), 187,000 (private), Unemployment rate 7.5 pct
Personal Income/Outlays 8:30) Proj,: +0.4 pct June
Factory Orders (10:00) Proj.: +2.3 pct June vs. +2.1 pct May
*FOMC: Oversees nation’s open market operations, the buying and selling of U.S. Treasury securities, as well as the primary “decider” in the direction of interest rates and money supply.
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.
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