This is a tricky situation. The market is up sharply primarily because in recent weeks the Fed has emphatically assured the Street it wasn’t going to withdraw (taper) from its bond buying unless the economy gained enough traction to justify it. It has repeatedly emphasized that taper is not the same as tightening credit.
As a result the market has shot up 7.5% in less than four weeks.
All this, right before Q2 earnings are being released.
There is some risk here. We would be better off if the market had been in sideways consolidation prior to these reports.
The market cannot afford major a series of ugly surprises with Q2 reports, worse yet downward revisions in guidance and projections.
Odds slightly favor the bulls here. If the report period was going to go badly, I think the market would be heading south by now.
As I have said frequently, I believe this bull has much further to run, just NOT in a straight line. We have yet to see an enthusiastic return of the individual investor and small- and micro-caps haven’t yet begun to sizzle.
I am disturbed by what happened in June when both stock and bond markets plunged following Fed chief Bernanke’s reference to tapering out of QE toward year-end and completely withdrawing by mid-2014.
I am more disturbed by the fact the Fed immediately reversed fields countering Bernanke’s statement and generating a surge in the markets.
Something artificial about all this.
Maybe the market can press on as if nothing happened. Truth is, the market did not like the idea of tapering QE has been a significant contributor to the bull market that started in early 2009.
Whether taper is really not tightening, or not, the markets stand to react adversely when it does start. Or let’s say, when it is perceived by the BIG money that it will soon start.
Investor’s first read– an edge before the open
S&P 500: 1,695.53
Nasdaq Comp.: 3,600.38
Russell 2000: 1,053.39
Tuesday, July 23, 2013 (9:10 a.m.)
Apple(AAPL: $ 426.31)
No change. Earnings due after the close July 23d. Stock dropped close to $7 Friday. Resistance is $430 – $432. Support is $412 unless earnings are a big disappointment, then $398 is a possibility. Price cutting in smart phones stands to adversely impact margins.
FACEBOOK (FB – $ 26.04)
Earnings are due Wednesday. If Friday’s drop suggested the Street was nervous about the report, yesterday’s firming indicated otherwise. Support remais at $26.
I DO NOT OWN, NOR HAVE I EVER OWNED APPLE OR FB.
ECONOMY: Economic reports continue to reflect a slowly improving economy, not anything that would prompt a change in the Fed’s policy of accommodation. Any acceleration in this tempo will raise concern that the Fed will begin to withdraw from its bond buying program.
While the Fed believes the Street now “get’s it,” that taper is not tightening, investors cannot be convinced of that, clearly not after the plunge in stock and bond markets after Bernanke’s June 19 comments about tapering starting in Q4 and ending in mid-2014.
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com
FHFA House Price Ix.(9:00) Proj.: +.08 pct May vs. +0.7 pct Apr.
Richmond Fed Mfg. Ix. (10:00) Proj.: +0.8 pct July unch. from June
PMI Mfg Ix. (8:58) Proj.: 52.8 July vs. 51.9 June
New Home Sales (10:00) Proj.: 481,000 rate June vs. 476,000 MAy
Durable Goods Orders (8:30) Proj.: +1.5 pct June vs. +3.7 pct May. Ex-trans +0.6 pct June
Jobless Claims (8:30) Proj.: 341,000 (7/20/13) vs. 334,000 prior week
Kansas City Fed Mfg. Ix. (11:00) Proj.: unchg vs. minus an index oif 5 in JUne
Consumer Sentiment (9:55) Proj.: 84.0 July
“Investor’s first read – an edge before the open”
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.