Bulls Battling News of Global Economic Slump, Fiscal Cliff

Yesterday’s bounce was a little stronger than “technically” justified, suggesting money managers are buying on pullbacks even in face of a number of major uncertainties. Both the DJIA and S&P 500 closed at my resistance levels.

Internally, the DJIA and Nasdaq Comp. were firm with advancing issues and upside volume topping decliners and downside volume by healthy margins.

But the market will open on the downside this morning, yet another test of money managers’ appetite for stocks. Support at DJIA 13,415 (S&P 500: 1433 must hold to prevent a drop to DJIA 13,215 (S&P 500: 1415).

Investor’s first read – an edge before the market opens
DJIA: 13,485.97
S&P 500: 1447.15
Nasdaq Comp.: 3136.60
Russell 2000: 843.54
(Friday, September 28, 2012 9:16 a.m.)

MONEY MANAGERS BUYING ON DIPS:

Money managers can be expected to continue to buy on pullbacks, but will back away if they see the potential for lower prices. Lower prices would be triggered if the obvious negatives simply chase these buyers to the sidelines.

GLOBAL ECONOMIES WORSENING:

The deterioration in global economies is worsening, especially in Japan, China, South Korea and Europe. Weakness in these economies is factored into stock prices to a point, but not if these countries slip into recession. All have undertaken efforts to stimulate their economies.

NOVEMBER ELECTION:
President Obama leads in the polls, but odds favor the gap will narrow by November 6, raising the level of uncertainty.

FISCAL CLIFF:
While Congress refused to deal with fiscal cliff issues prior to adjourning, the press will insist it gets a lot of ink above the fold between now and the end of the year.

BULL MARKET EXTENSION?
If money managers can overpower these uncertainties with their buying, it suggests they see a brighter future than is apparent now.

Bull markets have demonstrated they climb a wall of worry time and again. With no exception, it has always been difficult to accept that during the climb, simply because the “news” is so gloomy.

Along those lines, the stock market has always been an accurate forecaster of reversals in the economy – up and down. The S&P 500 correctly forecast the economic is up 117% since its intraday low on March 6, 2009. That’s huge in face of all the bad news that transpired, especially the dysfunction in the U.S. Congress and near meltdown of the euro.

If the Bulls are going to run-the-table now, they have their work cut out for them – big time! The pattern of trading since June 4 (DJIA: 12,035, S&P 500: 1266) has been volatile, but upbeat.

ECONOMY:

Pending Home Sales dropped 2.6% in August after an upwardly revised gain of 2.6% gain in July. Estimates ranged between a drop of 2.6% and a gain of 3%. Pending sales are reported when a contract is signed. They differ from existing Home Sales in that the latter are reported when a sale is closed ( 1-2 months later) and comprise 90% of the home market.
The Chicago PMI (regional business) will be reported at 9:45 today and Consumer Sentiment at 10:00.

FACEBOOK (FB – $20.32):
Last Thursday, I indicated I planned to discontinue coverage of FB, since I felt I had achieved the goal that I set in May, of offering daily guidance for followers of FB starting at $34 on May 21 with my warning about a drop to the $24 – $26 area, 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 for the stock at $16.88.
On September 4, it hit $17.55.
However, I did indicate I would post comments on occasion if I felt it would be helpful, but opt out of daily technical coverage.
The current plunge is a test of its September low of $17.55. Initially, it should try to hold above $19.25, though I wouldn’t rule out a new low, since my original target was $16.88 on a selling climax reversal. The fact the tech sector is weak along with the market is not helping.
Thursday: After hitting a wall at $21, FB slipped back to $20.16. It needs to cross $21.25 to reverse a negative pattern. It needs buyers, pronto, or it’ll drop below $19 within days.
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 I felt at $34 it was very vulnerable in face of all the misunderstanding and hype.

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.