Taper Today = Sell Off Followed by a Rally - No Taper = Rally Followed by a Sell Off.

George Brooks |

Only a fool would risk a headline like that. My wife agrees, not with the headline, but the other part. But I see it that way, so why hedge ? 

 

   TODAY: The consensus is for  the Fed to begin tapering out of QE today, yet the market is acting like it won’t happen.

   At this point, I expect an announcement to begin tapering out of QE would hammer stock prices BRIEFLY, followed by a very sharp rally. 

   Here’s why. We have gone to the brink on this taper stuff for 6 – 8 months. It’s the surprise moves or news that does the most damage, not something that has been preceded by a dozen false starts.

   What’s more, the Fed has repeatedly stated its intent to re-start QE if the economy falters.

   Finally, the Fed has been in QE for more than four years. It helped more at some times than others, but mostly it cultivated a sense of security, albeit an addiction that will be hard to overcome.

If the Fed tapers today, I see the potential for an intraday drop in the DJIA to 15,691 (S&P 500: 1,762), followed by a rally that may get into plus territory.

If the Fed passes on taper, I see a brief rally to 15,965 (S&P 500: 1,788).

 CASE FOR JANUARY TAPER:

 Yesterday, I made a case for tapering in January rather than today.  For one, the Fed would have access to another month of economic data removed from the distortions of the government shutdown, and January 30 would coincide with the transfer of Fed power from Bernanke to Yellen.

    For, another, March is on the cusp of the pick up in the real estate/building business, which would be adversely impacted by any disruption in interest rates as a result of taper.  Then too, a potential t showdown over raising the U.S. debt ceiling is likely to hit the headlines at that time adding to the disruptive effects of a Fed taper.

   If the Fed opts for a January taper, it will have to schedule a press conference to accompany it, since there is none scheduled as of now – a tip off in advance.

   WARNING:  The holiday season is riddled with distractions, shopping parties at work, with friends, travel, family obligations, etc. It’s an easy time to put your surveillance of stocks you plan to own on hold. Don’t do it. This is December, a time of strange market activity. Take a few days off from your “stock watch” and  your next look will be at stocks that have jumped  3% to 6%.

Investor’s first reada daily edge before the open

DJIA: 15.875

S&P 500: 1,781

Nasdaq  Comp.4,023

Russell 2000:  1,118

Wednesday, Dec. 18, 2013    9:20 a.m.

   TECHNICAL ANALYSIS OF EACH OF 30 Dow Industrials.

   At key junctures, I technically analyze each of the 30 Dow Jones industrials, seeking three levels, a reasonable risk, a more pronounced risk level and a reasonable upside potential, all three are short-to-intermediate-term.  I tally the estimates for each and divide by the Dow’s “divisor” to arrive at what the DJIA would be under each of the three scenarios. It worked wonders picking the bear market bottom on early March 2009 and served well on a number of occasions in the interim.  A reasonable downside here would be 15,277, a more pronounced downside would be 15,048 and a reasonable upside would be 15,974.

BEST SIX MONTHS TO OWN STOCKS:

Over the years the Stock Trader’s Almanac* has expounded on its significant finding that the stock market performs better  between November 1 and May 1 than between May 1 and November 1.

   The Almanac’s  “Best Six” goes back to 1950.  The six months is a snapshot between November and May.  Many major market advances often start before November, but the point made  here is the period between fall and May is where the action is.

   IS THIS GOING TO BE A “BEST SIX MONTHS ?

The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1.*

   With a 3.6% rise in the DJIA since October 31, the Street is now wondering if the market is off to yet another “Best Six Months.” Out of the last 25 years, Nov.1 to May 1, have produced 19 up-years, 3 flats and 3 downers. The best years averaged gains of 11.8% with the best up 25.6% (1998 – 1999).

   THE DANGER:  over the last 25 years, there have been 14 corrections ranging between 6% and  16% during this November1  to May1 period. Seven of those started in January, two in December and four in February.

   TIMING – OPPORTUNITY STOCKS  New addition planned: alert to stocks with emerging technical patterns with potential. In a prolonged downturn, I would alert readers to stocks with vulnerable patterns.  All on the drawing board.

   The following are based on technical analysis only and  are not to be taken as buy or sell recommendations, but as one of many factors that must be considered in the decision process. Comments do not take into consideration earnings reports, or changes in institutional ratings, company guidance. Technical analysis is based on one’s interpretation of  the impact buying and selling have on the price of a stock and is therefore not an exact science. News and events can change an interpretation instantly. 

Apple (AAPL: $554.99) Positive. (ALERT)

Like so many of 2013’s winners, AAPL is getting hit by year end selling and will have to probe for a level that attracts enough buyers to turn it back up. Resistance is now $562 - $566. Pre-market trading confirms my suspicions, that AAPL will dip below $550 today.  This could lead to a very attractive opportunity a smidge below $545.

Facebook (FB:$54.86)  Positive

 Will replace Teradyne (TER) on S&P 500 on Dec.20, which could be the reason for its recent strength. Yesterday, I said FB needs to consolidate  its 14-day surge from $44. FB not ready for that.  Support $54.

IBM (IBM: $175.76)  Negative  (ALERT !)

Rebounded sharply off October’s 52-week low which could comprise a double bottom.  Needs to test yesterday’s low of $172.73 to validate a double bottom,  which it started to do yesterday.  Resistance is still between $178 and $180. It is very important IBM pick up buyers here to prevent a drop into the $160s.

Pulte Homes (PHM: $18.02)  Positive

Minor Changes: The  housing industry must now demonstrate it can gain traction. That may be in the works with the big jump in October’s New Home Sales. PHM should attract buyers in this area. if housing is a “go.” Stock has held four times in this $17.80 area. Failure to hold takes it closer to $17.10. The housing industry could easily go into limbo – bump along. Yesterday’s Housing Market report was bullish after a three month slump.

First Solar (FSLR:$55.51)  Neutral

Stock needs a credible institutional research report to assure investors FSLR’s fundamentals are not following China’s track.  Spikes of  buying volume suggests FSLR may be attracting buyers. Yesterday’s bump up improves pattern   Support $54.80.  Resistance starts at $56.25.

Nike (NKE:$76.76)   Positive 

Needs a high-volume push across $76.80 to improve the pattern. This was a big drop for a stock that moves both ways  in tiny increments. It dropped like this  in October and reversed to the upside. Real battle going on here.

Hewlett-Packard (HPQ: $27.45)  Positive

Broke out of 9-day consolidation on increased volume. Support moves up to $27.30>

Polaris Inds. (PII:135.90)  Positive

Pattern improving, could move across $138, market permitting. Support is $135.

Amazon (AMZN: $387.65) Positive

Failure to follow through on Monday’s strength suggests sellers are still there. Minor support is $387. Must break up through resistance at $391 - $392.

Pandora Media (P:26.72) Positive.

Still a seller there, but P is holding the line at $26.40.  Has its lovers and haters. But has upside potential and moves quickly.

NOTE: I AM NEITHER LONG OR SHORT ANY OF THE ABOVE STOCKS

THE ECONOMY: 

This may be the most significant week for reports on the economy and Fed action of the year.

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:

Empire State Mfg. Svy. (8:30) flat

Productivity/Costs (8:30) year over year  for Q3 was +0.3 pct. vs. +0.2 pct. Q2

PMI Mfg. Ix..(8:58) Index  for Dec. 54.4 vs. 54.3 Nov.

Industrial Production (9:15)Nov up1.1pct. vs. +0.1 pct. Oct.

TUESDAY:

FOMC Meeting Begins

ICSC Goldman major chain store sales: same store sales jumped 4.8 pct in the Dec. 14 week

Consumer Price Index (8:30): Nov. was flat vs. a drop of 0.1 pct. in Oct.

Housing Mkt. Ix. (10:00) Rose 4 points to58 ending a three month slump.

WEDNESDAY:

Housing Starts (8:30) Nov. Starts  +22.7% vs gain of 6.7% Oct. Permits down3.1% vs. gain of 6.7% Oct.

FOMC announcement on TAPER (2:00 p.m.)

FOMC forecasts (2:00) p.m.)

Bernanke press conference (2:30)

THURSDAY:

Jobless Claims (8:30) Proj: For 12/14 week  337,000 vs. 368,000 for prior week which increased 68,000.. Claims are back up to level before shutdown.  Four week avg. is only up 6,000 to 328,750

Philly Fed Svy. (10:00) Proj: December index is 10.0

Existing Home Sales (10:00) Proj: Nov. 5.02 million-unit rate  vs. 5.12 million-unit rate Oct.

Leading Indicators (10:00) Proj:Nov. 0.7 pct. vs. +0.2 pct  Oct.

FRIDAY:

Quadruple Witching Friday

GDP (8:30) Proj: Third estimate for Q3  is +3.6 pct. may be inflated by inventory growth estimates

Kansas City Fed. Mfg. Ix. (11:00) Proj:  Dec. index  is 8  vs. 7 in Nov.

RECENT POSTS - 2013

Nov 25 DJIA  16,064  Fetch the Blinders – Here come the forecasts

Nov 26 DJIA  16,072   Time to Shop for New Winners and Old Winners Getting  

                                     Whacked by  Profit-Taking”

Nov 27 DJIA16,072   “December Head-Fakes Galore – Raises Risks”

Nov 29 DJIA 16,097  “Stock Market Bubbles Don’t Pop to a Full House”

Dec 2   DJIA 16.086  “Serious Stuff Coming This Week and Next”

Dec 3   DJIA 16,008  “Hunting Season – Be Armed and Ready”

Dec 4   DJIA 15,914  “Holidays, Or Not, DO NOT Take Your Eye Off This Market”

Dec 5   DJIA 15,889  “December’s Two Dilemmas – Watch Your Back”

Dec 6  DJIA 15,821   “No Fed Taper=December Rally – Correction Q1 ?

Dec 9  DJIA 16,020  “Investor Angst Intensifies”

Dec 10 DJIA 16,025 “ Two Big Dates Loom – What to Watch”

Dec 11 DJIA 15,973  “Year End Rally ?

Dec 12 DJIA 15,843  “Trading Opportunities Imminent – First a BUY – Then a

                                     SELL”

Dec 13 DJIA15,739  “Best Six Months Ahead ? Not Without an Ugly Correction in

                                    the Interim”

Dec 16 DJIA               January 30 Taper ?  If So, Fed Needs to Schedule a Press

                                    Conference – a Tip off”

Dec 17 DJIA 15,755   Fed to Taper January 30 ? It Should, Here’s Why

*Stock Trader’s Almanac;Get it !  This is the most comprehensive compendium of investing savvy between two covers I have ever encountered in my 47 years of writing about the market. Got my first in 1968.  There you have it ! I’m an old duff, but I have programmed my computer (brain) with smarts gained from writing about the market in an unbelievably challenging stretch of  market activity.  I endorse the Almanac – It’s loaded with references, stats, valuable studies, and insight.

  George  Brooks

“Investor’s first read – an edge before the open”

sensiblesleuth@gmail.com

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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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