It is time for the Street to get off the Fed teat, and accept good news as just that – GOOD !
For too long, QE has been the Street’s blankie and anything that even slightly suggests the beginning of a Fed taper, triggers a snit fit.
Where were these guys five years ago when bad WAS bad, when good news was harder to find than a good word about Congress today.
On October 30, I headlined, “Do Not Rule Out Year-End Taper,” reacting to reports of a consensus that the Fed will not taper until March. I reasoned that the economic impact from Washington’s shutdown/near default debacle masked an underlying strength in the economy, which when unmasked would raise odds of an early taper. As a contrary thinker at times, I warned that no taper until March was built into stock prices, that any hint of an early taper would trigger a sharp correction is the market.
And that is what happened yesterday when the third estimate for GDP came in at a 2.8 percent increase at an annual rate.
Lose it, guys ! Life without the Fed can be good.
Granted, the first taper will be followed by angst about the second, and the third, etc. And taper does represent a change in Fed policy, but the Fed has promised it will accommodate the needs of the economy; what more can be expected.
Unless stock prices are out of sight at the time, I expect the first Fed taper to trigger a brief sell off, followed by a sharp rally.
The Employment Situation report showed 204,000 jobs added in October, up from a revised 163,000 in September. That’s better than expected and could add to fears of an earlier than expected Fed taper.
On the plus side, we have better-than-expected Q3 earnings and preliminary Q4 estimates for the S&P 500 at plus 6.8 percent. The European Central Bank (ECB) cut its benchmark lending rate Wednesday to boost Europe’s economy and there are indications the U.S. economy is gaining traction.
Negatives would include early profit-taking and institutional window dressing, and the need for some consolidation of October’s 8% surge.
If this correction gains momentum, DJIA 15,440 (S&P 500: 1,728) is possible, though I sense the market will rally before getting there.
That turn can come today if the bears can’t attract a following. In that case, I 2would expect a bounce from DJIA: 15,526 (S&P 500:1,740).
Investor’s first read– a daily edge before the open
S&P 500: 1,747
Russell 2000: 1,079
Thursday, Nov. 8, 2013 (9:01 a.m.)
TECH WATCH: Changes: Adding Nike (NKE), Polaris Industries (PII) and Pandora (P) and dropping Target (TGT) and eBay (EBAY).
I am considering the elimination of the Tech Watch section and offering it in a separate publication on a subscription basis.
I would be able to cover more companies, and would not be constrained by a pre-market deadline. Comments welcome: [email protected]. Include opinion about how you think I could even improve commentary bearing in mind these are NOT buy/sell comments.
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: $512.49) Positive.
Remains in consolidation, but market plunge yesterday to take it to secondary support, possibly $503 – $505 with a spike reversal. Resistance is $515,95. Facebook (FB: $47.56) Positive
Market weakness can drop FB to $45.65 – 46.35 Resistance is $49.35.
IBM (IBM: $180.00) Negative, but has the potential now to turn positive.
Spiked at the open yesterday, then sold off with the market but was one of two of the Dow 30 to post a gain. Could slip to $179.4o but acts like it is pretty much sold out.
Pulte Homes (PHM: $17.51) Positive
Spiked past $18 in early trading yesterday then dropped along with the market. Support at $17.35 should hold, unless the Street freaks out about taper.
First Solar (FSLR:$58.13) Positive
Blowout earnings last week prompted buying and panicky short covering. Support at $57.60 should hold. Slight chance of drop ton$53.80 – $54.30. Resistance is 59.80.
Nike (NKE:$75.70) Positive
Market weakness could take NKE down to $74.35. Resistance drops to $77. Odds favor a buyer stepping in at$75.60.
Hewlett-Packard (HPQ: $25.69) Positive.
Recent strength due to its $3.5 billion U.S. Navy order. Spike across $26.63 at yesterday’s open failed to hold, but stock closed marginally ahead. Support at $25.50 should hold.
Polaris Inds. (PII:126.24) Positive
Broke primary support yesterday and stands to test secondary support at $123.75 – $124.45. Will need to rebuild a base. That could start with a one-day reversal today.
Amazon (AMZN: $343.56) Positive
Raymond James’ Aaron Kessler’s raised his rating to Strong Buy from Market Perform with a price target of $446. Support at $337.50 should turn AMZN back up. Resistance is $350.
Pandora Media (P:$26.26) Positive.
Opinions on P vary, but seem in line with investors long or short position. This one can move sharply either way. Earnings due Nov. 21 after the close. A dangerous stock to be on the wrong side of. Yesterday’s drop did not change its positive status, but $25 needs to hold.
While the economic reports released this week are few in number, they are significant. Though the accuracy of these reports may still be suspect due to the shutdown, the Street will be watching for clues about the economy’s strength, since it will influence the timing of Fed taper.. Bernanke speaks at 3:30p.m. Friday.
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com – www.mam.econoday.com
Factory Orders (10:00) Rose1.7 pct in Sept. vs. declines of 0.1 pct Aug, 2.8 pct July
Fed’s Powell speaks (11:40)
Fed’s Rosengran speaks (4:00 p.m.)
ISM Non-Mfg.Ix. (10:00) Oct. index for Oct. 55.4 vs. Sept. 54.5
Fed’s Lacker speaks (12:30 p.m.)
Fed’s Williams speaks (5:10p.m.)
Leading Indicators (10:00) Sept. +0.7pct.
Fed’s Pianalto speaks (1:0 p.m.)
Jobless Claims (8:30) For week 11/2 claims dropped 9,000 to 336,000
GDP (8:30) PROJ.: 3rd estimate Q3 +2.8 pct. annual rate, prompting fears of an early Fed taper.
Fed’s Stein speaks (9:10)
Employment Situation (8:30) October 204,000 vs. 163,000 (revised) Unemployment rate 7.3 pct.
Personal Income/Outlays (9:55)PROJ.: Sept: +0.3 pct.
Consumer Sentiment (9:55)PROJ.: Nov. index: 75.0 vs. 73.2 Oct.
Fed’s Lockhart speaks (12:00p.m.)
Fed Chief Bernanke speaks (3:30p.m.)
RECENT POSTS – 2013
Oct 25 DJIA 15,509 “Best Six Months for Owning Stocks”
Oct 28 DJIA 15,570 “Do I Detect Speculative “Fever “ ? If So, What Can
Oct 29 DJIA 15,568 “ When Will the Small Investor Plunge ?”
Oct 30 DJIA 15,680 “Don’t Rule Out Fed Taper by Year-End”
Oct 31 DJIA 15,618 “Easy Does It ! Market Nervous, Needs Breather”
Nov 1 DJIA 15,545 “Rally Failure, Correction to Continue ?
Nov 4 DJIA 15,615 “Room to Run – Just Ditch the Blinders”
Nov 5 DJIA 15,639 “Market Crossroads – Which Way ?
Nov 6 DJIA 15,618 “Bulls Hold the Edge, But What About Interest Rates ?
Nov 7 DJIA 15,747 “Early Profit Taking or Warning of a Correction ?”
“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.