If a taper decision by the Fed isn’t enough to stir the pot Wednesday, how about the Lawrence Summers withdrawing from consideration for Fed chief; the release of 9 key economic indicators with speeches by five Federal Reserve officials, one Thursday and four Friday between 12:30 and 1:45 p.m.?
Oh…. and Friday is “Quadruple Witching Friday,” when contracts for stock index futures, stock index options, stock options and single stock futures all expire. This simultaneous expire occurs only four times a year (3rd Friday: Jan., Mar., Jun., Sep.), and can be accompanied by increased volatility, sometimes extreme.
The impact has lessened over the years, but to occur during a high-impact week like this may rattle the cage.*
FED TAPER ANNOUNCEMENT WEDNESDAY:
The Fed’s mishandling of the taper timing issue in June, first with Fed chief Bernanke’s comment about a September taper and a wrap up in mid-2014, which jacked up mortgage rates and triggered a drop in stock prices, then with counter comments by Fed officials in days following which triggered an abrupt rebound in the stock market.
The Fed has to get it right this time, and that’s what I think it hopes to accomplish with the speeches following Wednesday’s announcement.
To-date, the economy has not developed enough traction to make a near-term taper a sure thing. It’s a close call. Whatever the call, the Street must feel confident interest rates won’t rise much more.
That’s the big challenge for Bernanke & company.
So far, the Street views a taper out of QE as a negative, and continued taper as a positive, even though the latter would be justified by sluggish economic growth.
An announcement Wednesday of the first taper should trigger a sell off, but that stands to be followed by a “relief” rally based on the knowledge that the big “Q” is behind us.
The bigger question is that this is a change in a Fed policy that started in early 2009, thus begins a countdown to a final taper out of QE, which may come in mid-2014 if the economy gains enough traction.
NEW FED CHIEF:
Lawrence Summers has withdrawn his name from the candidacy for the chairmanship of the Federal Reserve, so it’s between Vice Chair of the BOG of the Fed, Janet Yellen and a recently announced candidate, Donald L. Kohn. While Kohn is less known outside financial circles, his credentials are impeccable. Both are qualified and neither highly controversial !
CONCLUSION:
Is this the Larry Summers rally, or is it a rally anticipating an announcement Wednesday that the Fed won’t be starting to taper out of QE this month ?
Odds slightly favor a DELAY in tapering this month. I think the Fed needs to see more data. The 10-year treasury has dropped to 2.81 pct. from 2.99 pct. on Sept. 15. I am not sure how the Fed will achieve it, but I see a big effort to ensure the Street, rates won’t be rising in the near-to intermediate future.
While both interest rate and stock prices can rise for a while in tandem, this is not the environment for that.
THIS WEEK:
The market will surge at the open today, with a good chance of a new high in the S&P 500 (1,709) this week offering investors an opportunity to lock in some profits.
Investor’s first read– an edge before the open
DJIA: 15,376
S&P 500: 1,687
Nasdaq Comp. 37.22
Russell 2000: 1,053
Monday, Sept. 16 (9:20)
TECHNICAL OBSERVATION – STOCKS:
The following are observations based solely on technical analysis and don’t give consideration to fundamentals or changes in brokerage ratings which can have an immediate impact on stocks, justified or not. The idea here is to give readers insight into the likely trends and turns in the stock’s price, short-and long-term.
I picked up on AAPL and FB last year when they were in a tailspin, and picked up on IBM, Pulte, First Solar, Target, and Hewlett-Packard recently for the same reason. These are not buy or sell recommendations, and are not stocks I have recommended.
NOTE: Expect support and resistance levels to change more frequently under adverse and uncertain conditions like those we are experiencing presently..
WARNING: This market is highly “news sensitive,” with everything at the present negative. Any break for the better in the mid-East, taper, or in the threat of a government shutdown in October will trigger a rally, especially in stocks below, since they have been hammered already.
Resistance/support levelsare “tight” and more easily penetrated than if I gave readers “general” resi/spt levels.
Apple(AAPL: $464.90 )
Note: Bottom was targeted at $385 for the turn around Apr. and Jun. 2013 (double bottom). continue to follow
Pattern: Positive, but must firm up ASAP
Resistance: $469 (sharp change, Icahn waiting as Street adjusts to disappointment in AAPL’s future strategy.
Support: $454-458 (downward revision) Made to order for Icahn, and boy do shareholders need help from outside.
AAPL taking hit in face of concerns that its just released low-priced IPhone is too high-priced to compete. That’s just one opinion, many followed Apple’s release, some highly critical, others not so. I didn’t see this coming, nor should I, if research departments tracking fundamentals in-depth didn’t. Usually the stock’s behavior signals trouble in advance, which suggests yesterday’s sell off may have been overdone, especially with Carl Icahn licking his chops at an opportunity to pick up shares at a discount, but he may let the Street take it a bit lower.
Facebook (FB – $44.31)
Note: Bottom was targeted below $18 for a turnaround Sept. 2012. Continue to follow.
Pattern: Positive –
Resistance: $44.85
Support: $44.10
Recent strength attributed to Sun Trust Robinson Humphrey’s increase in price target to $55 from $40. Due for a rest, but buyers should re-enter in here.
IBM ($ 192.17)
Note: Started coverage Aug. 7, 2013 after big plunge in stock
Pattern: Neutral, but improved
Resistance: $193.60 The $194 – $196 area should be tough to penetrate
Support: $191 Be aware that IBM has ranged four times up and down between $185 and $215 over the last two years.
PulteGroup (PHM- $ 16.52)
Note: Started coverage Aug. 12, 2013
Pattern: Now positive with big move yesterday
Resistance: $16.95
Support: $16.20
First Solar (FSLR:38.22 )
Note: Started coverage: Aug.: 22, 2013
Pattern: Yesterday’s hit too much, FSLR back to neutral. Needs to hold here
Resistance: $38.40 Resistance $39 – $40 formidable
Support: $38
Target (TGT: 63.76)
Note: Started coverage Aug: 22, 2013:
Pattern: Needs to stabilize after yesterday’s return to its base from resistance level.
Resistance: $64.30
Support: $63.75
Hewlett-Packard (HPQ:22.07)
Note: Started coverage Aug. 23, 2013
Pattern: Negative – at risk of trading lower after being dropped from DJIA
Resistance: $22.15 – steady seller
Support: $21.25 (suspect)
Sharp drop from $26 created overhead supply (a lid) $19.85 is possible after being dropped from DJIA thus triggering selling from funds indexed to the DJIA.
eBay (eBay: $53.82 )
Note: Started coverage Aug. 28, 2013
Pattern: Positive
Resistance: $53.90
Support: $ 53.50
Amazon.com (AMZN: $ 297.92 )
Note: Started coverage Aug. 28
Pattern: Bullish
Resistance: $299.40
Support: Support now $296
I do not own, nor am I short AAPL, FB, IBM, PHM, FSLR ,TGT, HPQ, EBAY, AMZN.
ECONOMIC REPORTS: BIG, BIG Week for reports.
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com – www.mam.econoday.com
MONDAY:
Empire State Mfg. Ix. (8:30) PROJ: Spt. Index 9.0 vs. 8.24 Aug.
Industrial Production (9:15) PROJ: +0.5 pct Aug vs. flat July
TUESDAY:
FOMC Meeting begins
ICSC-Goldman Store Sales (7:45) PROJ:
Consumer Price Ix.(8:30) PROJ: Aug. +0.1 pct. (ex. food/energy +0l.2 pct vs. 0.2
pct. July
Housing Market Ix.(10:00) PROJ: Sept. index 59 vs 59 Aug.
WEDNESDAY:
Housing Starts (8:30) PROJ: 0.915 million unit rate in Aug. vs. 0.896 million
units July Permits 0.915 mil. units Aug. vs July’s 0.943
mil. units July
FOMC Meeting Announcement and Forecasts (2:00 pm)
Bernanke press conference (2:30)
THURSDAY:
Jobless Claims (8:30) PROJ: 341,000 for week ended 9/14 vs. potentially
distorted 292,000 prior week, which may be revised upward.
Current Account Deficit (8:30) PROJ: Q2 minus $96.7 billion vs, $106 billion
In Q1
Bloomberg Consumer Comfort Ix.(9:45) PROJ: none
Existing Home Sales(10:00) PROJ: Aug. 5.255 million unit rate vs. 5.390 rate
July, which was up 6.5 pct from June.
Philadelphia Fed Svy Ix. (10:00) PROJ: Index for Sept. 10.0 vs. 9.3 in Aug.
Leading Indicators (10:00) PROJ: Aug. +0.6 pct
Fed’s Pianalto speaks (11:30)
FRIDAY:
QUADRUPLE WITCHING FRIDAY !
Fed’s George speaks (12:30)
Fed’s Tarullo speaks (12:40)
Fed’d Bullard speaks (12:55)
Fed’s Kochelakota speaks (1:45)
RECENT POSTS: 2013
Sep 4 DJIA 14,833 “What Must Happen for the Bull to Snort”
Sep 5 DJIA 14,930 “ September Taper – Buying Opportunity ?
Sep 6 DJIA 14,937 “Market Wants to Run – Are You Ready ?”
Sep 9 DJIA 14,,932 “Breakout or Fakeout ? Syria/Fed Taper”
Sep 10 DJIA 15,063 “Easy Does It !
Sep 11, DJIA 15,191 “Taper Center Stage – What to Expect”
Sep 12 DJIA 15,326 “Fed to Delay Taper Next Week ?”
Sep 13 DJIA 15, 300 “What’s in Line Next Week – Fed Taper, Larry Summers”
*The DJIA may be impacted more with the replacement of Bank of America (BAC), Hewlett Packard (HPQ), and Alcoa by Goldman-Sachs (GS), Visa (V), and Nike (NKE). While the change isn’t effective until the morning of trading Sept. 23, the trading by index funds associated with these changes may distort the averages.
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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