Yesterday, I indicated I believed the debt ceiling deadline set by Treasury Secretary Jack Lew at October 17 would be breached, but a deal would be reached the following weekend, the 19th and 20th. I noted I expected the DJIA to hit 12,760 intraday (S&P 500: 1,430) on the Friday the 19th.
In the interim, I warned of a news whipsaw market that will trigger sharp moves up in face of news that suggested an end to the hostilities in Washington, then down when hopes were dashed.
This arises from misleading reports of public meetings, speeches, private, behind the scenes meetings, rumors, statements from people who because they aren’t authorized to comment, comment anyhow, rating agencies warning of debt downgrades, and doomsters projecting doom.
By now, I think a lot of the members of Congress have heard from people in high places, the types that keep a low profile, but swing a big club. That kind of pressure will mount. If the deadline on the 17th passes without action, the sky will truly fall, not on us, but on elected officials of both parties. There are toes you simply do not step on.
The divisiveness is reaching Vietnam War heights. One important contributor I believe is the nation’s sense of security has been rocked by first the 9/11 attack on our own soil, and two, the greatest recession since the 1930’s, with the biggest names on Wall Street vanishing into thin air or another company’s arms.
It’s remarkable the stock market has done so well since early March 2009.
WHY IS THIS IMPORTANT ?
Because this paranoia and insecurity can manifest itself in a plunge in stock prices IF INVESTORS BEGIN TO DOUBT OUR GOVERNMENT CAN FUNCTION.
So, we took an unprecedented hit in our back yard, we took an unprecedented hit in our economy; if we take an unprecedented hit in our belief that our country can be governed, we have a 1987 style bear market, i.e. over the cliff.
CONCLUSION:
The level of stock prices is pretty much a matter of opinion, based on confidence in the present and future, itself based on economics, earnings, world events, etc..
What I am writing about here is the confidence factor, and my message is the market cannot take a huge hit in the belief this country can be governed.
At this point, the stock market has become very vulnerable. If investors suddenly lose confidence, this market is going further south in a hurry.
OPPORTUNITY:
I am looking at this as an opportunity to buy. I picked a level for the market that is extreme, but viable (see above). I am trying to paint a picture here that reflects the risk and potential inherent in unfolding events and forces behind it.
I expect the Republicans to introduce a proposal over this weekend that re-opens the government, but with strings attached, but does not address the debt ceiling. If so, Monday’s market will be up sharply, but end in a rally failure when rejected – a head fake with more to follow.
TODAY:
If someone knows something about a proposal, a rally will push the DJIA across 15,100 (S&P 500: 1,688). If not, we will get the rally failure today with a drop below DJIA: 14,900 ( S&P 500: 1,664).
Investor’s first read– an edge before the open
DJIA: 14,996
S&P 500: 1,678
Nasdaq Comp.3,774
Russell 2000: 1,070
Friday, Oct. 4, 2013 (9:16 a.m.)
TECHNICAL OBSERVATION – STOCKS: NEW FORMAT
I am streamlining this format in order to include more stocks.
The following are observations based solely on technical analysis and don’t give consideration to fundamentals or changes in brokerage ratings, earnings guidance/projections, breaking news, which can have an immediate impact on stocks, justified or not. The object here is to sense forces of supply and demand for the stock which affect support and resistance levels frequently.
These are not buy or sell recommendations, and are not stocks I have recommended.
STOCKS OF GENERAL INTEREST:
Note: Currently, there is the potential for sharp moves in stocks in response to developments in Washington. Under these conditions, support/resistance levels are especially suspect.
I have added a “debt ceiling crisis” risk level for each stock, a price where these stocks could drop to if the debt ceiling decision goes down to the wire and fear escalates.
Apple (AAPL: $483.41) Positive.
The political scene stands to disrupt the normal pattern of trading, but may offer better opportunities this month than business as usual.
We saw that yesterday with AAPL’s break of $488 support in face of a sharp drop in the market. That said, there is a risk here down to $470 and even $462. That’s below my debt ceiling crisis level which I am revising to $457 – $462.
Facebook (FB: $49.13) Positive.
Late day buying prevented further slide. Resistance is $50. Support slips to $48.50
Debt ceiling crisis risk: $46.50
IBM (IBM: $183.86) Positive IBM is still probing for a solid base which may have to come closer to $182. Stock needs big buyer to prevent this. Resistance now $185. Debt ceiling crisis risk: $175
Pulte Homes (PHM: $16.91) Positive.
Overall market chasing buyers. PHM now has resistance at $17. Support at $16.30 must hold to prevent drop below $16. Pattern still positive, but upside limited by weak market. Debt ceiling crisis risk: $12.80
First Solar (FSLR:$43.08) Positive
$44-$45 possible, but overall market a drag. Support is $42
Debt ceiling crisis risk: $37.20
Target (TGT: $63.45) Negative.
Still struggling in a sloppy base formation. Seller still there. Resistance $63.70, Support: unimpressive at $63.10
Needs big buyer, which can happen if economy gains traction. What is the message here ? Consumer temporarily tapped out ?
Debt ceiling crisis risk: $59.60.
Hewlett-Packard (HPQ: $20.92) Negative.
Yesterday was ugly, but so was the market. HPQ has trouble in a stable market, this instability, may break it below $21. Wednesday’s buyer may step in again, or wait for the market to find support. Really needs some institutional support – positive research report – aggressive bargain hunter ( if justified). Break below $21 suggests drop to $19.
Debt ceiling crisis risk: $17.90
EBAY (EBAY: $54.91) Positive.
This is one of those markets where resistance levels are spot on, but support levels break down – not a good sign. With a strong stock like this, one should pick a point below the market for a potential buy. EBAY has hit my Debt crisis risk level, and that should hold for now, though a further drop in the market which I expect should take it to $51.70 – $52. Resistance is now $55.50
Amazon (AMZN: $320.51) Positive.
Breakout DOA, AMZN marching to overall market’s weakness. Good news is this pre-debt ceiling debacle in Washing may produce a nice buying opportunity in this strong stock. Support is $312, but market weakness could take it down to $302 – $303. Debt ceiling crisis risk: $303.
STOCKS SHOWING ATTRACTIVE or UGLY TECHNICAL PATTERNS
ALSO NEW: This is intended to call attention to unusual technical activity. Will not be followed daily. I plan to introduce this feature in the near future. If possible, I will bring it out if the market takes a huge hit.
(NOTE:I do not own, nor am I short AAPL, FB, IBM, PHM, FSLR ,TGT, HPQ, EBAY, AMZN.)
ECONOMIC REPORTS: Another key week for reports on the economy.
The big news will be on jobs with the ADP report coming Wednesday and Employment Situation report coming Friday before the market opens.
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com – www.mam.econoday.com
THURSDAY:
Jobless Claims (8:30) Rose 1,000 to 308,000 for week 9/28.
Bloomberg Consumer Comfort Ix. (9:45)
Factory Orders (10:00) declined 2.4 pct. in July, but excluding transportation rose 1.2 pct.
ISM Non-Mfg. Ix. (10:00) Index dropped to 54.4 in Sept. From 58.6 in Aug.
Fed’s Fisher speaks (12:30)
Fed’s Powell speaks (12:45)
FRIDAY:
Employment Situation (8:30) PROJ.:Sept. 184,000 vs. 169,000 Aug., Unemployment 7.3 pct.
Fed’s Kocherlakota speaks (1:45)
Sep 20 DJIA 15,636 “Raise Cash for October Opportunity”
Sep 23 DJIA 15,451 “Can a Normal Correction Become a Bigger One ?”
Sep 24 DJIA 15,401 “Opportunity Looms as Storm Clouds Form”
Sep 25 DJIA 15,384 “Brinkmanship Starts – What to Do”
Sep 26 DJIA 15,237 “Street Not Worried – Yet Should You Be ?”
Sep 27 DJIA 15,328 “Prepare for an October Buying Opportunity”
Sep 30 DJIA 15,258 “Makings of an October Buying Opportunity”
Oct 1 DJIA 15,129 “Now the Scary Part – the Debt Ceiling – Default ?”
Oct 2 DJIA 15,191 “Potential for a Deadline to be Breached”
George Brooks
“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.
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