Progress, But Not Out Of Woods Yet
The financial markets continued to rise early Tuesday afternoon based on a
carryover from Monday's
news regarding Syria and China. The
Washington Post noted hurdles remain on the Syrian front:
An unexpected Russian proposal for Syria to avert a U.S. military strike
by transferring control of its chemical weapons appeared to be gaining
traction Tuesday, as Syria embraced it, France said it would draft a U.N.
Security Council resolution to put the plan into effect, and China and
Iran voiced support. But major questions remained over whether the specifics
of a resolution backed by France and the United States could win the support
of Syria's longtime patron, Russia, whose foreign minister appeared to
be balking Tuesday at France's proposal of a binding Security Council resolution.
Lagging Dow Reshuffles Deck
On a relatively light day for fresh market-moving news, upcoming changes to
the Dow Jones Industrial Index seemed to be grabbing the market's attention.
From Bloomberg:
Goldman Sachs Group Inc., Visa (V) Inc. and Nike Inc. (NKE) will be added
to the Dow Jones Industrial Average (INDU), replacing Bank of America Corp.
(BAC), Hewlett-Packard Co. (HPQ) and Alcoa Inc. (AA) in the biggest reshuffling
since April 2004. The changes will boost the influence of banking and computer
companies in the 30-member gauge as the fifth-biggest U.S. bank by assets
and the largest payment network join seven other financial and technology
firms, such as JPMorgan Chase & Co. and Cisco Systems Inc. The changes
will take effect after the close on Sept. 20.
According to the press release from the Dow Jones committee who crafted the
changes, reasons for the swaps included the "low stock prices" of the three
companies being removed and the "desire to diversify the sector and industry
group representation of the index."
Mark Your Fed Calendar
The markets are still celebrating what they hope is an avoidance of the worst-case
scenario in Syria. The distraction has pushed the three-month long obsession
with tapering to the back burner, at least for the time being. From Bloomberg:
The Fed is watching economic data ahead of its Sept. 17-18 meeting as
it considers reducing its monthly $85 billion in asset buying. Economists
estimate the Fed this month will taper its monthly bond buying by $10 billion,
to $75 billion, according to the median of 34 responses in a Bloomberg
News survey.
Fed and Resistance
The upcoming Fed announcement may provide an excuse for traders to focus on
some fast approaching technical obstacles for the bulls. The S&P 500 ETF
(SPY) found buyers several times near the blue trendline below. In technical
analysis, the expression "what once was support may now act as resistance" could
provide an excuse for traders to nail down some short-term profits.
Investment Implications
Based on the recent improvement shown in our market
model, we added to our U.S. (VTI) and foreign (FXI) equity holdings last
week and again Monday. The S&P 500 held near the 1680 to 1685 level for
over two weeks in July (see chart below). That range represents the next
hurdle for the bulls.
Below 1680-1685 on the S&P 500, we will most likely remain in a holding
pattern. Above 1685, our model will most likely call for added stock exposure
for a potential push toward 1732
