A Second Leg Down to Follow Rally in the Market

George Brooks |

Investor’s first read - Brooksie’s edge before the open

Tuesday, May 22, 2012 9:12 a.m. ET

DJIA: 12,369.38

S&P 500: 1295.22

Nasdaq Comp.: 2778.78

Russell 2000: 747.43

As forecast Thursday, I see a two-legged decline before the markets achieve stability. The first leg down, I said would find support at DJIA 12,275 (S&P 500: 1292). Yesterday’s lows before the rebound were DJIA 12,317 (S&P 500:1295), followed by a decline to DJAI 11,915 (S&P 500:1255).

I see this rebound starting to hit resistance at DJIA 12,615 (S&P 500: 1327).

The Facebook (FB) debacle was more than a screw up by Morgan Stanley and Nasdaq, it was a warning signal that greed has its perils and watch your back, this is a casino. FB now has overhead supply, sellers waiting to get out even. It appears all takers got all the stock they wanted, and more so. My guess is it will hit 24 - 26 before stabilizing. Fortunately, yesterday was a gainer and today will start that way.

Stock prices are, and will always be, a game of supply and demand which is to a great extent driven by human emotions. Right now, investors (including some big boys) feel they have been “taken.”

While many will rationalize they are in it for the long haul, they will be watchful and hopeful that FB will get up a full head of steam and rip to new highs. IF IT STALLS, expect a drop into the 20s.

With all eyes on FB, the Street ignored Europe. There is a big European Union summit tomorrow where Germany’s Angela Merkel and France’s president, Francois Hollande are bound to lock horns over a tradeoff between stimulus and austerity as solutions for Europe’s sovereign debt issues.

Back to “uncertainty,” and a market that is seeking a comfort level where the managers of money feel negatives and uncertainties are adequately discounted.

TODAY: Avoid it! The Euro-summit tomorrow and FB’s market action stand to discourage aggressive buying.

George Brooks

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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.

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Symbol Name Price Change % Volume
YECO Yulong Eco-Materials Limited 1.07 0.05 4.87 70,560

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