I expect the Street to focus more and more on the Unemployment Rate now that the Fed has emphasized its importance as An important factor in deciding when to ease its QE policy. While the Fed will consider other economic factors when deciding to exit QE, the Street believes the unemployment rate is the key one.
We will get the ADP Employment report at 8:15 Wednesday, which gives us a heads-up on employment numbers, but won't get the Employment Situation report which includes the unemployment numbers until Friday at 8:30.
Yesterday was not as buoyant as it may have appeared. The DJIA, S&P 500, and Nasdaq Comp closed well off their highs. The Russell 2000 was a little stronger, but that may have been due to its annual re-alignment Friday. Advancing issues outpaced decliners by a bit more than 2:1, but up-volume and down volume were even-up.
This market needs new leadership. Money managers were routinely buying at will until May 19 when Fed's chair Bernanke indicated the Fed may begin tapering later this year and end QE by mid-2014. Interest rates jumped, bonds and stocks plunged as a result.
Whether an effort by a half dozen FRB Governors to employ damage control will restore the bullishness that existed before the market peaked on May 22 is uncertain.
The sooner the market adjusts for possible conditions post-QE, the better.
That puts UNCERTAINTY back in the limelight. While that does not prevent individual situations from outstanding performance, it does suggest the overall market will struggle UNTIL the Street becomes more comfortable with the prospects of post-QE.
That is one reason why I think the FRB should have outlined its exit strategy. The Street knows as little now as before May 19, except it is now on alert tapering out of QE is getting closer.
FRIDAY'S UNEMPLOYMENT REPORT WILL BE CRITIUCAL TO NEAR-TERM MARKET DIRECTION
Minor support is DJIA 14,912 (&P 500: 1,608).
Investor's first read – an edge before the open
S&P 500: 1,614.96
Nasdaq Comp.: 3,434.47
Russell 2000: 987.84
Tuesday, July 2, 2013 (9:06 a.m.)
Apple (AAPL: $409.22)
AAPL got a pop at the open yesterday on news it filed a trademark application in Japan for iWatch, as well as from a Raymond James upgrade to "strong buy" from "outperform."
The stock was due for a bounce, having plunged 17% in less than two months.
The stock may also have benefitted from institutional buying during the first day of Q3.
I still think AAPL's communication with the investment community has been poor, adding at 9.3 times earnings, yielding 3.10% and sitting on a pile of cash, communicating the merits of this company should be a no-brainer.
I am not convinced it has hits its low for this cycle, but it is getting close. The big turn will take more news than we have seen to-date. Minor support is $405, but $398 is more likely. In a stable market, it could rise to $424 before stalling.
FACEBOOK (FB - $24.81)
Pattern is positive, but some slippage likely with support at $24.43.
Generally, I don't recommend or comment on individual stocks. I started covering FB technically on May 21, 2012 after its IPO, because I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38. I'll continue technical coverage for a while to accommodate readers.
I picked up AAPL late last year when it was in a tailspin with an objective of targeting a bottom. Both were widely followed, and I thought my input would help. I would like to add more stocks to my "technical" following, but the deadline nature of this letter , which is market-focused, make it difficult. That is still a possibility.
The Street is now faced with a choice – Is it hoping for disappointing reports and an increase in the likelihood that the Fed won't back away from QE soon ? Or will it hope for upbeat reports, a sign that QE has been helping. It can't have it both ways – For access to information including charts and graphics go to www.mam.econoday.com .
Note: Time of release not available
Markit PMI Mfg.Ix (8:58): June was 52.5 up from 51.5 in May
ISM Mfg Ix. (10:00); Was up to 50.9 from 49.0 in May.
Construction Spending (10:00): Was up 0.5% in May
Motor Vehicle Sales: Proj: Domestic12.2 mil. Ann. Rate: Total 15.5 mil. Ann. Rate.
Factory Orders (10:00) Proj: +2.0%
ADP private payroll employment (8:15) Proj:165,000
ISM Non-Mfg. Ix. (10:00) Proj: 54.5
THURSDAY: July 4 Holiday
Jobless Claims (8:30) Proj :345,000
Employment Situation Report (8:30) Proj: 161,000 nonfarm; Private: 175,000
Unemployment rate: 7.5%
Note: The FOMC: Federal Open Market Committee: 12 voting members, 7 from the Fed. Res. Board, 5 from the 12 F.R. Banks.
Tasks: Oversee open market operations (buying and selling U.S. Treasury securities); make key decisions on interest rates and money supply. Establish a target level for federal funds rate (rate commercial banks charge between themselves for overnight loans between institutions that have surplus balances and those that don't.
"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.