On October 3, I said the Oct. 17 debt ceiling deadline would be breached, but a deal would be reached the following weekend, the 19th and 20th. I reasoned that Treasury Secretary Lew can find ways to stretch the deadline several days without defaulting.
Additionally, I said I expected the DJIA to hit 12,760 intraday (S&P 500: 1,430) on the Friday the 18th which. I viewed as a big buying opportunity.
In the interim, I warned of a news whipsaw market that will trigger sharp moves up in face of news that suggested an end to the hostilities in Washington, then down when hopes were dashed. This led to my warning about the risks in buying a “solution” rally.
CONCLUSION:
Yesterday’s surge ran past my resistance levels for the market averages and on to the resistance levels I set for today: DJIA:15,125 (S&P 500: 1,685).
How much further the market can run today depends on how the Street perceives the chances are for successful negotiations to raise the debt ceiling and address the shutdown.
Yesterday’s rally was a no-brainer. Everyone knew it was coming. Its extension to higher levels depends on whether negotiations hit snags. It is also a given that some members of Congress won’t like it and will say so.
Obviously, the risk for investors is twofold. If one sits on the sidelines expecting a pullback that doesn’t develop, they can miss an opportunity. If they buy and it goes down, they lose money.
This is the news whipsaw, and I expect it to torment investors in coming days.
No sweat, one says, I’m in it for the long term ? That can be hard to stomach if the market tanks 17% like it did in July – August 2011 when the White House and Congress dealt with this issue, resulting in the Budget Control Act of 2011.
WILL CONGRESS MISS THE OCT. 17 DEADLINE ?
It’s less likely now that opinion polls released yesterday show an unprecedented plunge in approval ratings for Congress.
Investors must be aware that Congress can miss it, but only for a few days with a solution coming over the weekend of the 19th – 20th. If so, a huge plunge in stock prices on the 18th is likely with a huge rebound the following Monday.
If the deal that is finally struck here creates more uncertainty with a repeat of this brinkmanship in November, my expectations for a market bottom in October and rise in prices is in doubt.
TODAY:
It is very possible we will get negative press about the prospects for a Debt ceiling “deal” announced yesterday. Delay for six weeks means we go through this all over again. What’s more, little has been said about the shutdown.
My guess is, outside pressure from opinion polls and “heavyweights” forced yesterday’s action, that the same hostilities still fester awaiting an opportunity to re surface taking this mess into extra innings.
The Street can decide to ignore more of the same in Washington and BUY as it did in January when it appeared politics was going to put a lid on the market for the first six months of the year.
But the market averages were much lower then (DJIA 13,104 and S&P 500: 1,426) on Dec. 31. The Street may opt to cool it, even sell into strength. The next six days are critical.
Resistance now is DJIA: 15,215 (S&P 500: 1,702) Support is DJIA 14,995 (S&P 500: 1,679).
Investor’s first read– an edge before the open
DJIA: 15,126
S&P 500: 1,692
Nasdaq Comp.: 3,760
Russell 2000: 1,069
Friday, Oct. 11, 2013 (9:16 a.m.)
TRIVIA:
The new DJIA ain’t what it used to be:On Sept. 23, Bank America (BAC), Alcoa (AA), and Hewlett-Packard (HPQ) were replaced by Visa (V), Goldman-Sachs (GS), and Nike (NKE). The change has lopped off 128 more points from the average than if the change wasn’t made and increased its volatility since V and GS are higher priced stocks, $196 and $165 respectively. Since the DJIA is price-weighted, percentage changes in the higher priced stocks tend to dominate the average when they have big moves. At $196, Visa has more than 8 times the impact on the DJIA as Cisco (CSCO) at 22.50.
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 suspect.
I have added a “debt ceiling crisis” risk level for each stock, a price where these stocks could drop to if the debt ceiling decision goes down to the wire and fear escalates.
Apple (AAPL: $489.63) Positive.
Resistance still formidable at $490, but AAPL ate away at it yesterday, giving credibility to a consolidation (flag) pattern with support$480 – $482. Break above $494 raises odds AAPL crosses $500 , market permitting. Big market plunge can take stock into $460s.
Debt ceiling crisis price: $457 – $462.
Facebook (FB: $49.05 ) Positive, consolidation likely.
No major change. Looks like a panicked seller was met by a buyer when FB was hit at the open Tuesday by a Raymond James downgrade from strong buy to outperform may put a lid on FB in the $48 – $49 area. It was tested yesterday and may have to consolidate between $48 and $49.50 if it is to break out into the low 50s. Resistance is $49.50, support rises to $48.
Debt ceiling crisis risk: $46.50
IBM (IBM: $184.77) IBM now technically negative but has attracted a bargain hunter.
Yesterday, I cut Big Blue some slack, noting that some young deep pocket guys can be expected to nibble in the $180 area after a 17% spill. That’s what happened as it jumped to $184. Near-term looks like $187. Nevertheless, $168 – $ 172 possible in bad market. Debt ceiling crisis risk: $170
Pulte Homes (PHM: $15.86) Positive, but weakening as Washington dysfunction threatens entire economic/housing recovery.
Late-day buying yesterday signals move to $16.50 – $17, but the overall market must continue to be strong for it to do that. If housing recovery is at risk, PHM goes to $12.50 – $13.
Debt ceiling crisis risk: $12.80
First Solar (FSLR:$42.33) Positive
FSLR spikes up and down a regularly. Its spike to $43.25 yesterday ran into selling dropping it to $42.50. If it can penetrate that resistance a move to $44 is in the cards.Debt ceiling crisis risk: $37.20
Target (TGT: $63.45) Negative, but showing some life.
Definitely has attracted a buyer reflecting the potential for a turn. Debt ceiling crisis risk: $59.60.
Hewlett-Packard (HPQ: $22.32) Negative.
Shareholders gotta love CEO Meg Whitman. Wednesday, she set HP into orbit with no less than a comment that she felt comfortable with HP’s progress and expectation that revenues would “stabilize.” Wednesday popped the stock 9%. I have been saying HP needed a big analyst report, and I still think it does, clearly more than what Whitman delivered. Yesterday, I said I doubted it could move beyond $22.70. Break below $22.00 takes HPQ back to $21.25.
Debt ceiling crisis risk: $17.90
EBAY (EBAY: $53.42) Positive.
Market plunge took toll Tuesday with a follow-through Wednesday. Rebound should carry to $54.60. Debt ceiling crisis level now $51.
Amazon (AMZN: $305.17) Positive.
Rebound should carry to $309.
I do not own, nor am I short: AAPL, FB, IBM, PHM, FSLR ,TGT, HPQ, EBAY, AMZN.
ECONOMIC REPORTS: A light reporting week shaping up. Some reports will be delayed due to shutdown, though Federal Reserve based reports and private sector reports won’t. The economy is not currently center stage, though the deadlock in Washington will hurt the economy and confidence and business decisions going forward.
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com – www.mam.econoday.com
THURSDAY:
Jobless Claims (8:30) PROJ.: week ended 10/5 310,000- vs. 308,000 prior week
Import/export Prices (8:30) PROJ.: Sept. +0.2 pct. vs +0.1 pct Jly.
Fed’s Bullard speaks (9:45)
Treasury Budget (2:00)
Fed’s Williams speaks (2:30)
FRIDAY:
Producer Price Ix. (8:30) PROJ.: Sept. +0.2 pct vs. +0.3 pct Aug.
Retail Sales (8:30) PROJ.: zero gain Sept. vs. 0.2 pct gain Aug.
Consumer Sentiment (9;35) PROJ.: Index Sept. 75.0 vs final Aug. 82.1
Business Inventories (10:00) PROJ.: Aug. +0.2 pct.
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”
Sep 30 DJIA 15,258 “Makings of an October Buying Opportunity”
Oct 1 DJIA 15,129 “Now the Scary Part – the Debt Ceiling – Default ?”
Oct 2 DJIA 15,191 “Potential for a Deadline to be Breached”
Oct 3 DJIA 15,133 “Debt Deal to Miss Oct.17 Deadline – Settle Over the
Weekend – DJIA Bottoms Oct 18, 12,760 (intraday)”
Oct 4 DJIA 14,996 “Weekend Proposal on Shutdown – a Head Fake ?”
Oct 7 DJIA 14, 936 “DJIA 12,760 if Oct. 17 Deadline Missed”
Oct 8 DJIA 14,936 “Don’t Chase This Week’s Rally
Oct 9 DJIA 14,776 “Don’t Buy A Debt Ceiling Solution Rally”
Oct 10 DJIA 14,802 “A Very, Very Dangerous Rally”
George Brooks
“Investor’s first read – an edge before the open”
NOTE: STOCK TRADERS ALMANAC: The new annual Stock Trader’s Almanac was late this year, due to a printing issue which has been resolved. This is a “must,” always has been, if you are a serious investor, or intend to be a serious investor. Visit stocktradersalmanac.com for details
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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.
