Investor’s first read – Brooksie’s edge before the open
Thursday, March 1, 2012 9: 18 a.m. ET
DJIA: 12,952.07 S&P 500: 1365.68
Our economy is gaining traction, though gradually. For the moment, Europe is not in crisis and Congress is not reminding everyone it is dysfunctional.
Under these conditions a correction of 5% – 7% would be the last thing investors would expect – WRONG. As noted recently, my scan of hundreds of fundamentally qualified stocks has found many in need on a correction/consolidation before moving higher. That can happen if enough investors feel as I do. Stocks can fall of their own weight if buyers are a “no show.”
I am still finding attractive stocks to buy, one’s that have been in consolidation or have already pulled back, but they are hard to find.
What’s my point ?
Just be prepared for a correction of 5% to 7%, lock-in quick [undeserved] profits, avoid chasing stocks that have had a long run, and have some cash on hand so you can take advantage of lower prices in the event we get a correction.
Analysts attribute yesterday’s decline in the market to the fact Fed chief Bernanke did not refer to another quantitative easing by the fed in his congressional testimony.
Let’s see. If he said the Fed felt it necessary to launch QE-3 because business was sputtering, would these guys be more bullish ? It appears that the Fed feels the economy is growing barely enough without more stimulus, but would step in if it starts to soften. That’s O.K. with me.
The Fed has kept interest rates historically low since December 2008 and expanded its balance sheet through the purchase of $2.3 trillion of bonds. It purchased $1.8 billion of long term securities yesterday as part of Operation Twist. Bernanke did indicate he expects a low interest rate policy to persist through 2014.*
It will be a challenge when this low interest rate policy unwinds. I would expect the BIG money to hit the silk ahead of everyone else, assuming it still owns any bonds in this bull market. Once interest rates rise, bond values will tumble; it won’t be pretty. Be prepared IN ADVANCE.
IRAN: It looks like sanctions are starting to hurt Iran across the board, impacting exports, shipping, insurance, banking, and energy transactions. The U.N. Security Council has imposed four sanctions since 2008. In addition the United States and Economic Union has imposed its own sanctions, all designed to discourage Iran from developing a nuclear bomb.
Gasoline: You can’t mention IRAN without mentioning the price of gasoline. While the U.S. is not dependent on Iranian oil, Japan, China and India are. It would be worth your while to visit speakingofoil.com for some perspective on gasoline prices. Its writer,Tom Kloza, forecasts gas prices will peak at $3.75 to $4.25/gal. this spring . Gas prices vary geographically. Gas in Colorado, Wyoming, Montana, Idaho, Utah and southern Ohio have been closer to $3/gal.
ECONOMIC REPORTS: As long as U.S. economic indicators signal recovery, these reports are only a minor driver of stock prices. Should they soften, the market will go into a nasty correction.
- Pending Home Sales (10 a.m.) Fell in Dec. after 7.3 pct. gain in Nov. and 10.4 pct. gain in Oct. Year on year sales gained 5.6 pct.
- Durable Goods (8:30 a.m.) rose 3 pct. in Dec. after 4.2 pct rise in Nov..
- S&P Case Shiller Home Price Index (9 a.m.) Dropped 0.7 pct. in Nov. for sixth time.
- Consumer Confidence (10 a.m.) dropped to 61.1 in Jan. from 64.8 in Dec.
- GDP (8:30 a.m.) for Q-4rose 2.8 pct. from Q3’s 1.8 pct., but most of rise was accounted for by an increase in inventories.
- Chicago ISM ( 9:45 a.m.) regional manufacturing dropped 3 points to 60.2, but is well above the “50” threshold for growth.
- Beige Book (2 p.m.) comments follow regarding economic outlook. It is released two weeks before FOMC meets.
- Motor Vehicle Sales (time: ?) Auto sales jumped 13.8 pct in Jan., trucks declined 4 pct. the first time in nine months autos outsold trucks.
- Jobless Claims (8:30 a.m.) Were unchanged for week ending Feb. 18
- Personal Income and Outlays (8:30 a.m.) P.I. increased 0.5 pct in Dec. following a 0.1 pct increase in Nov.
- ISM Manufacturing Index (10 a.m.) Rose one point in Jan. to 54.1 thanks to new orders which were up 2.8 pct.
- Construction Spending (10 a.m.) Jumped 1.5 pct. on top of a November increase of 0.5 pct..Private nonresidential outlays were ahead 3.3 pct..
Feb. 6 DJIA: 12,845 “Follow the Money as It Exits Safe Havens“
Feb. 7 DJIA: 12,878 “Market Held Up By Sneaky Buying“
Feb. 8 DJIA: 12,883 “Is It Safe For Bulls to Come Out and Play?“
Feb. 9 DJIA: 12,890 “BIG Money Buying the Future“
Feb. 10 DJIA: 12,801 “Can a Greek Deal Be Accomplished Over the Weekend?“
Feb. 13 DJIA: 12,874 “Easy Does It! Some Selling Into Good News Expected“
Feb. 14 DJIA: 12,878 “Investors Should Expect “Market Churn”“
Feb. 15 DJIA: 12,780 “Market Churn to Include Brief Correction“
Feb. 16 DJIA: 12,904 “Another Snag in Greek Bailout + Long Weekend = Extended Correction“
Feb. 17 DJIA: 12,949 “Investors Establish Bullish Turf“
Feb. 21 DJIA: 12,965 “The Market’s Stall is Deceptive While Selected Issuers Could Hum“
Feb. 22 DJIA: 12,938 “Rotation of Strength: Continuing Opportunities as Market Averages Remain Sluggish“
Feb. 23 DJIA: 12,984 “Market Stall Masks Opportunities“
Feb. 24 DJIA: 12,982 “Speculators Hyping $4 Gasoline by Summer“
Feb. 27 DJIA: 12,981 “Stock Prices: “May the Force Be With You”“
Feb. 28 DJIA: 13,005 “Big Test for Bulls Today“
Feb. 29 DJIA: 12,952 “Opportunities Exist Even in a Lethargic Market“
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.