Taper's End Fully Discounted - 2015 Interest Rates Not

George Brooks |

WednesdayJuly  23, 2014      9:08 a.m.  BEFORE the OPEN

    This is not a news driven market, as was the case when decisions in the past hinged on the jobless reports, the FED, Europe’s woes, war abroad and war at home (politics).

    That leaves two  things – interest rates and future earnings.  While always critical, future earnings are even more important now with the market at lofty levels.

    While the Street is well aware that the Fed will let interest rates rise in Q1 of 2015, the actual event may not yet be fully discounted.

     Taper’s end is old news, yet the level that interest rates can reach in 2015 is not.At some point, the Street will begin to worry about that and its impact on the economy, stock and long-term bond prices.  The latter is a bubble about to burst – again, this time though for years to come.

TODAY:

Odds slightly favor quick spike down followed by a rally and attempt to hit new 52-week highs (DJIA: 17,151.55; S&P 500:1,986.24; Nasdaq Comp.: 4,485.92.  

Support todayis DJIA 17,071; S&P 500: 1,977; Nasdaq Comp.: 4,433

Resistance todayis DJIA: 17,135; S&P 500: 1,985; Nasdaq Comp.: 4,466

Investor’s first readDaily edge before the open

DJIA:  17,113

S&P 500: 1,983

Nasdaq  Comp.:4,456 

Russell 2000:  

TECHNICAL ANALYSIS HAS CHANGED:

   Changes have occurred over the years in  technical analysis.Volume can signal  a turn in direction rather than continued momentum. Breakouts can be fake-outs. Classic resistance and support levels are often broken momentarily as if intentionally triggered to provide someone with an opportunity to sell or buy in-size.

   Chart patterns, are nevertheless readable, if investors adjust for these changes. Stocks are impacted by multiple option/futures strategies, high speed trading, hedge funds, etc., but it still boils down to money in and money out.

   The biggest technical risk is the “gap” up or down, featuring an abrupt and major change in price with no trading between the last price and next price.  This happens most frequently as a result of the Street’s reaction to earnings reports. There is little investors can do to anticipate or protect themselves from this hazard except diversification.

    A report doesn’t have to be disappointing for a stock to take a bit hit. That can happen  if earnings don’t exceed projections by enough.  Gaps down tend to sentence a stock to months of  listlessness.

    Reading charts is a matter of interpretation, a sensing of the balance or imbalance between  buyers and sellers. I don’t think this can be quantified. Patterns that are too consistent attract so many new followers, that they become neutralized.

   

THE FED:

    We will hear more cautionary comments from the Fed going forward in an attempt to ease an interest rate hike when its reality hits early next year. The Fed does not want speculative fever to run rampant prior to the rate increase.

    Her comments harpooned small biotech, momentum stocks and the Russell 2000, though more than likely just created a buying opportunity.

    Parallels to Fed Chief Alan Greenspan’s 1996 “irrational exuberance” – dot-com comments were immediately drawn, but rejected when the Street realized  the bubble didn’t burst until January 2001 four years later.

    The Fed’s “easing in” policy is bad news for those who want the feeding frenzy to continue unabated, but good news for investors who opt for  a more stable market and an inevitable crunch instead of crash.

   

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TECHNICAL ANALYSIS of 30 DOW JONES INDUSTRIALS

(UPDATED ANALYSIS:  July 21)

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

     I ran my analysis again following the Monday, July 21 close and concluded the near-term upside for the DJIA is 17,333 a  reasonable downside is 16,932 and more downside 16,865.

    My analysis run last week July 1 projected near-term resistance for the DJIA at 17,109 where it stalled last week.  

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

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THIS WEEK’s ECONOMIC REPORTS:

      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:

Chicago Fed Nat’l Activity Ix. (8:30): June’s index slipped to 0.12  from 0.21, reflecting  a zero reading in June’s  production component.

TUESDAY:

ICSC Goldman Store Sales (7:45): Dropped 0.4 pct. in July 19 week from prior week’s gain of 0.4 pct.

Consumer Price Ix. (8:30): June CPI up 0.3 pct vs May’s increase of 0.4 pct.

FHFA House Price Ix. (9:00):Rose 0.4 pct. in May – year/year  slipped to +5.5 pct. from +6.1 pct.

Existing Home Sales (10:00):Rose 2.6 pct. in June vs. gain of 5.4 pct. in May

Richmond Fed Mfg Ix. (10:00): Index up 3 pts. To 7 in July

WEDNESDAY:

MBA Purchase Apps (7:00): Up 0.3 pct. in July 18 week after drop of 8.0 pct. in prior week. Refi’s up 4.0 pct.

THURSDAY:

Jobless Claims (8:30):
PMI Mfg. Flash Ix. (9:45):

New Home Sales (10:00):

Kansas City Fed Mfg. Ix. (11:00):

FRIDAY:

Durable Goods (8:30):

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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 or as investment advice 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.

 

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