September Retail Sales and the Empire State Manufacturing numbers came in above projections; Business Inventories are lower relative to sales, a good omen for manufacturing.
(The following is a repeat for new readers, and because it is important e
nough to emphasize)
The Bloomberg Economic Surprise Index and the Citigroup Economic Surprise Index indicate the economy is growing better than economists’ expectations. Both are based on dozens of economic indicators compiled by various private and government sources. The Bloomberg Index has rebounded from a minus 0.42 in July to a minus .06 last week. The Citigroup Index has rebounded to 49.4 from a minus 65.3 in mid-July, all suggest business, as reported, is better than expected. Contributors to the improved index were – consumer confidence, auto sales and purchases of existing homes.
What does all this mean ?
Investor’s first read – an edge before the market opens
DJIA: 13,424.23
S&P 500: 1440.13
Nasdaq Comp.: 3064.18
Russell 2000: 828.28
Tuesday, October 16, 2012 (9:13 a.m.)
Well, analysts don’t like to look like they are missing the mark – hard on the ego and not great stuff come time for their review, so they’ll revise their projections, in this case upward. Money managers and other investors will respond accordingly – buy. I studied a comparison of the S&P 500 and the Citigroup Surprise Index and found that turns in the Surprise Index led turns in the S&P. This relationship is somewhat of a judgment call, easier to read in hindsight, not easily quantified, so it is best used in combination with other factors (as any one indicator).
Nevertheless, it is a “heads up!
Q3 EARNINGS:
Corporate earnings for Q3 will continue to flow in coming weeks. Expectations are that earnings will be down.
But the market is telling us not to worry, in fact, Q3 earnings may post a slight gain overall.
FISCAL CLIFF:
The press has sunk its talons into this one. I even saw a parallel drawn to the sky diver who plunged 24 miles to earth over the weekend. He landed safely, the press suggests otherwise for the fiscal cliff.
This is juicy stuff for the press. If Congress fails to resolve the spending/tax issue by December 31, the sequester kicks in forcing automatic spending cuts exceeding $500 billion at a time the Bush-era tax cuts expire raising taxes across the board.
I expect Congress do something to avoid a plunge over the cliff. It has some wiggle room, and may find a way to postpone the decisions into 2013, but there again you have an extension of “uncertainty” – bad for the economy.
In fact, I expect it to be a debate issue before the election. No one else seems to expect that, so I am probably spot-on.
One important point to note here : Post-Election years are historically bad ones for stock prices.**
Why?
Because administrations use this year to do most of the unpopular things that need to be done, thus paving the way for 3 or 2 years to make things right for the next presidential election. Bottom line: 2013 may be rough and tumble, nasty, unsettling, painful, pain-in-the-butt, hard on your portfolio,
CONCLUSION:
Both the DJIA and S&P 500 closed at my resistance levels, showing strength most of the day, pretty much in line with money managers tendency to buy on pullbacks.
Economic news yesterday was better than expected and the market responded accordingly. What is important is, it held its gain enabling it to move higher today with another push to DJIA 13,495 (S&P 500: 1449).
ECONOMY: BIG week !
We have a broad base of indicators coming this week, which may give us a clue about whether the economy is continuing to weaken, or stabilizing. Granted, these are reports covering activity a month or more ago, but at some point will flash a trend or change.
FACEBOOK (FB – $19.75):
Today: FB is trying to stabilize above $19.50. Stock has attracted some buying, but buyers must get more aggressive to turn it up here. A move above$20 on increased volume is needed. Needs some buyers now or it will slip lower. Pattern is weak.
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO because on May 21, I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38.
George Brooks
*Bloomberg.news
**Stock Trader’s Almanac
………………………………………………..
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.
Read Next
