Economic Stability to Test Fed Policy

Investor’s first readDaily edge before the open

DJIA: 17,905
S&P 500:2,095
Nasdaq  Comp5,059.:
Russell 2000: 1.251

Friday, June 5, 2015   9:17 a.m.

CONCLUSION:

     Yesterday’s plunge in a market that has been  dominated by wide swings up and down every day or two was a little more important than the many that have preceded it.

     The Bulls lacked the firepower to break out of the four month trading range that has contained it between DJIA: 17,600 and 18,350 (S&P 500: 2,040 – 2,120).        

      Blame it on Greece’s decision to postpone an agreement on its debt dilemma from today’s deadline, to later this month, or blame it on the Fed, it doesn’t matter.

      This six-year bull market has seen more formidable negatives than those faced today, yet the S&P 500 is only ahead 1.8% this year.  

      Stock prices are essentially a matter of opinion based on historical valuations, the Fed, the economy and the tone of the news environment.   

      Today’s problem is the Street simply can’t decide which way to go.  It is addicted to the Fed’s zero-based interest rate policy to the point good economic news spooks them.

      Yet, it wouldn’t take some bad economic news to drive them to the exits.

      Until the Bulls or the Bears muster enough momentum, the volatility (and the trading range) will continue.

TODAY:

      Soft open, most likely due to good economic news at 8:30, that May produced 280,000 new hires, prompting new fears that the Fed will raise interest rates sooner, rather than later !!

      Hit ‘n run traders may want to take a shot at a rally today, as I suspect the Bulls will try once again to rally its troops and attack the DJIA:17,976 level (S&P 500: 2,106; Nasdaq Comp.: 5,073).

      RISK: Above average

ECONOMIC REPORTS

     This is a  big week for reports on the economy. Monday, Personal Income/Outlays; PMI Mfg.; ISM mfg.; and Construction Spend were reported as non-events.  PMI is still adversely impacted by the strong U.S. dollar.

     Factory Orders came Tuesday and were off 0.4 pct. in Apr., the 8th decline in 9 months. The ADP Employment in May, reported Wednesday, was on target, April’s International trade gap improved. PMI Services, ISM Non-Mfg. were positive. Jobless Claims for the May 30 week were down 8,000 to 276,000.The all-important  Employment Situation for May came in at 280,000 new hires, much higher than expected.

      With a pickup in U.S. housing, it would be nice if other sectors of the economy would pick up. That can happen if the economy rebounds from Q1’s slump.   

GREECE

The consequences of Greece exiting the Eurozone are so dire, a compromise is likely. Not only would it be devastating to Greece’s economy, but its impact on global banking and financial circles would be dramatic. Don’t be surprised if this is a white knuckle one before resolution (this weekend ?)

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ALERTALERTALERT

     The six months period between Nov. 1 and May 1 has historically been the best six months for the stock market.* The six months between May 1 and Nov. 1 has underperformed. Consistent as this seasonal pattern has been, it must be noted that opportunities to trade against these trends have occurred often.  Analysts and the press will make a lot of noise about this phenom in coming months –  be careful.
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My Technical Analysis of the 30 DJIA Companies:  

On occasion, I technically analyze each of the 30 DJIA stocks  a reasonable risk, a more extreme risk, and an upside potential over the near-term. I add the results of each, then divide by the DJIA “divisor” (0.1498588) to get the DJIA for those levels.
     As of  May 29, a reasonable risk is 17,917; a more extreme risk is 17,660 The upside potential is has dropped with the market’s inability to follow through last week and is now 18,260.  

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KEY EXTERNAL FACTORS: 

-Stock market bubble – China
-Q1 earnings for some companies will suffer from U.S. dollar’s strength and plunge in oil prices.
-Market still keyed on the Fed and it’s first bump up in interest rates, which with a slight softening in recent economic reports looks like it may happen later rather than sooner.
Concern that the U.S. economy is beginning to slump. This week is mixed.

Note: Source of economic data

For a weekly economic calendar and good recap of  indicators, go to mam.econoday.com.

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*Stock Trader’s Almanac

George Brooks
Investor’s first read
A Game-On Analysis, LLC publication

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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  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. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk

 

 

 

 

 

 

 

 

 

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