Suddenly, the market has gotten a bit atwitter about crunches in IBM, First Solar (FSLR) and Zillow (Z) and the prospect for additional unpleasant surprises.
The prospect of a Fed taper beginning in September is being talked about so much that an actual announcement should be fully discounted by the markets when it comes.
What still requires discounting is the fact this marks a change in Fed policy, one which will continue to change through the better part of 2014.
The greatest uncertainty regarding the level of stock prices is how much of this year’s rise is due to Fed assurances it will continue its taper until economic conditions justify a change. To that end, bad (or ho-hum) economic news was welcomed on the Street with a rally, because it delayed Fed taper.
Expectations for a resurgence in corporate earnings, or an acceleration in the economy is a more viable reason for a rise in stock prices, inaction by the Fed is not.
That mindset will have to change.
The big unknown is, what will happen to interest rates ? If they rise too much too quickly, they could choke of the housing recovery. So far, that is not the case. The Mortgage Bankers Assn reported today an increase of 0.7 pct in loan requests for home buys for week ending Aug. 2 even though rates have already risen, Actually, this could prompt an acceleration in home buying as both financing, the cost of homes increases in a market where inventories are decreasing.
CONCLUSION:
The market is in limbo now, sandwiched between Q2 earnings and the next FOMC meeting September 17-18 and Bernanke’s all important press conference. There is talk of a showdown between the White House and Congress on a raise in the debt ceiling, or default if it doesn’t happen. The key date here appears to be October 11 in face of a threat to shut the government down and just prior to Congress’ recess,
All spells uncertainty, which increases the likelihood of a correction in the interim.
Investor’s first read– an edge before the open
DJIA: 15,518.74
S&P 500: 1,697.37
Nasdaq Comp.: 3,665.76
Russell 2000: 1,052.17
Wednesday, August 7, 2013 (9:05 a.m.)
TECHNICAL OBSERVATION – STOCKS:
Alert: I have successively accomplished my goal of helping readers navigate through the plunges in both AAPL and FB and subsequent recoveries. .I may soon drop coverage and either pick up other fallen angels, or begin the technical tracking of stocks on the move. That said, I am adding IBM. It is struggling, but has the potential of becoming short-term unpopular just like AAPL and FB. There is the possibility the stock may present an exceptional buying opportunity on an unexpected plunge below $180 to a bottom in the low $170s. It is so widely held, the chances are good there will be more sellers than buyers for months, ergo a lower price. NOTE: These comments are based solely on “technical” analysis with no regard for “fundamentals.”
Apple(AAPL: $465.25)
Suddenly, it appears the wait for news about a new product or technology innovation is not that far off. Clearly the stock acts like its disgruntled shareholders have parted, removing that persistent selling that crushed the stock between September 2012 and June.
Yesterday, AAPL found support at $462.17, a bit below my target of $463* with a little help from a soft market. A near-term drop to $459-$460 is possible. Unlikely, but possible, would be a quick plunge to $447 in face of further market weakness.
Near-term resistance is$470, longer term $486.
FACEBOOK (FB – $38.55)
After 8 days in a row of higher and higher daily lows, FB finally broke the pattern with a drop to $37.94 in early trading yesterday. Yesterday’s drop dropped the odds of a move across $40 for now.. Resistance now looks tough at $39.17
IBM ($190.99)
Got drubbed yesterday by a downgrade by Credit Suisse.
Stock should find some support at $188.75, but be followed by a drop to $182 in the near future. Resistance is now formidable at $194.45.Risk here is $174, but it will take some piling on by analysts with negative assessments to get it there. This is the fourth ugly plunge since early 2012. Each time in the past, it rebounded across $210. Odds favor it won’t this time, not for some time.
I DO NOT OWN, NOR HAVE I EVER OWNED APPLE, FB or IBM.
ECONOMY:
A light week for reports on the economy is shaping up with today’s ISM Non-Manufacturing Index coming at 10 o’clock the highlight. The service industry accounts for close to 90% of our economy. The Fed’s Richard Fisher speaks today at 11:45, Charles Evans tomorrow at 9:30, Charles Plosser Wednesday at 12:30, and Sandra Pianalto at 1:40.
HOME BUYER BUYING PANIC ?
Mortgage rates rising, home prices rising, inventories decreasing !!
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com
MONDAY:
ISM Non-Mfg. Ix, (10:00): July came in at 56.0 vs. 52.2 in June and a forecast of 53.1
TUESDAY:
International Trade (8:30) Non-oil contributed to big drop in trade gap to $34.2 bil from a revised $44.1 bil.
JOLTS (10:00) – Job Openings and Labor Turnover-Designed to be an improve over unemployment rate. BLS survey based on employment, job openings, quits, layoffs, discharges, etc. The number of “unfilled” jobs – used to calculate job openings rate is a measure of the unmet demand for labor. June was 3,936 mil. Vs. 3,907 mil May. Job openings unchanged
WEDNESDAY:
Consumer Credit (3:00p.m.): Proj.: $15 billion
THURSDAY:
Jobless Claims(8:30) Proj.: 338,000 week ended 8/3 vs. 326,000 the prior week. Numbers this time of year can be distorted by temporary summer layoffs in auto industry.
FRIDAY:
Wholesale Trade (10:00) Proj.: +0.4 pct.
*support yesterday should have read $463-$465
George Brooks
“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.
Read Next
