Investor’s first read – Brooksie’s edge before the open
Friday, June 8, 2012 9:08 a.m. ET
DJIA: 12,460.96
S&P 500: 1314.99
Nasdaq Comp.: 2831.02
Russell 2000: 760.34
Up big on hopeful expectations, down on second thoughts –that’s what I was referring to when I warned to beware of the “news whipsaw.”
Wednesday’s DJIA rebounded from the nasty 1,178-point May June sell off with a 287-point surge.
Thursday, investors charged in to buy fearful the market would run away from them, after all China had announced efforts to stimulate a sagging economy and European leaders likewise.
At its high Thursday, the DJIA was ahead 140 points, but it closed up only 46 points, while the S&P 500, Nasdaq Comp. and Russell 2000 all gave up their entire gain for the day
In addition, Fed officials were out there reassuring investors the Fed would be there to cauterize the wounds if they get bad enough. Fed chief Bernanke’s testimony before the U.S. Congress Joint Economic Committee offered little new.
I assume that most investors that bought yesterday were sitting on a loss at the close yesterday. If not, they will buy the close today.
I just think we are looking at a very volatile market this summer, one that rises on expectations, then immediately declines on disappointment, all “news” based.
EUROPE
It’s still all about Europe. Leaders there will meet over the weekend to discuss measures to bail out Spain, the fourth euro-nation to need help. Its credit rating was cut three grades to BBB by Fitch, triggering a plunge in Spanish bond prices.
TODAY: Internally, yesterday’s market was not strong. The market breadth (advances/declines) relative to the ratio of up volume to down volume was flat for the NYSE and negative for the Nasdaq.
The key technical factor was simply that the market averages couldn’t hold a sharp gain. That indicates exhaustion of buyers and sellers who couldn’t wait to mug it during the last hour of trading.
Yesterday was not a death knell for the market, but a warning indicator that this will be a bumpy ride.
The market would be off more prior to the open, however there is a possibility Spain will be offered a bailout over the weekend, taking it off the “worry” list, for a short while.
Initial support is DJIA: 12,376 (S&P 500: 1304); resistance DJIA:12,520 (S&P 500: 1321).
There is a possibility, the market will surge in expectation that Spain will get a bailout this weekend, or be assured one is forthcoming.
Then too, it may just be more “talk” another link in the news whipsaw chain.
Facebook (FB) – Even with the help of a surging market for most of two days, FB was unable to sustain a rebound. I would have expected enough short covering to move the stock a point or so.
Someone is selling at these levels – Bad news. I am not, nor have I been, long or short, I just felt I should share my interpretation of the risk there, which I picked up on when it was 34 when it was apparent to me it was headed lower. I targeted 24 – 26 for downside risk. It was a botched IPO and has a lot of disappointed shareholders ready to sell. It hit a low of 25,52 Wednesday. The stock needs news or big buyer support or it is headed lower.
FOR YOUR NOTEBOOK: When stocks sit there giving you plenty of time to buy, step back and wait, they may be headed lower. Buying low and selling high isn’t easy – too much BIG money in there ahead of the individual investor. If the urge becomes compelling, and you want to own 500 shares, buy 100, then wait. That tempers the “urge,” but also gives you a position and option to buy more at a lower or higher price with the original purchase averaging the cost. So many of good and bad decisions involve human nature (emotions of greed and fear). One of the biggest reasons for the urge to buy is rushing in to buy because you are afraid you will miss a move.
ECONOMIC REPORTS: Stock prices have accelerated their decline in face of increasingly dour reports on the U.S. economy. Is this just another summer slump?
Will this trigger QE3 by the Fed. ? What’s important about this week’s line up of reports is a lot of Federal Reserve brass is out there addressing the issues – hmmmm.
Monday:
Factory Orders (10p.m.) Booking orders dropped 0.6% in April after a revised decline of 2.1% in March.
Tuesday:
ISM Non-Manufacturing Rept (10p.m.) The ISM Index bounced to 53.7 in May from 53.5 in April. The New Orders Index registered a bigger increase posting 55.5 vs. 53.5 in April, however employment in the sector dropped to 50.8 from 54.2. Growth in activity, but a drop in employment.
Wednesday:
Productivity and Costs (8:30) Q1 business productivity slipped at an annual rate of 0.5% after 1 1.2% rise in the prior quarter. Hours worked increased at an annual rate of 3.2% vs. 2.4% in the prior quarter, however compensation slowed to 1.5% from 3.9% in Q4.
Beige Book (2p.m.) Produced two weeks ahead of Federal Open Market Committee meetings (FOMC), the book reports on the economic conditions in each of the 12 Federal Reserve districts. It CAN offer clues to future Fed policy changes.
Thursday:
Jobless Claims (8:30) Claims declined 12,000 to 377,000 in the week ended June 2, bringing the 4-week average to 377,750. week to 383,000 bringing the 4-week average to 374,500.
Bloomberg Consumer Comfort Index (9:45) This Index results from a weekly survey of American views of the economy, their personal finances and buying intentions.
Friday:
International Trade (8:30) The trade gap widened to $51.8 billion in March from $45.4 Billion in February. Exports rose 2.9% after a 0.3% increase in February. The deficit in non-petroleum goods was a major contributor.
Wholesale Trade (10p.m.)Wholesale inventories rose 0.3% in March with sales up 0.5%, the inventory/sales ratio remained unchanged at 1.17.
*Bloomberg.com
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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