Investor’s first read – Brooksie’s edge before the open
Monday, March 12, 2012 9:02 a.m. ET
DJIA: 12,922.02 S&P 5400:1370.87
It looks like I overestimated the potential for a bigger correction. I was looking for a 5% to 7% decline over a three week period; we got half that much with a rebound the day after the correction started !
While the rebound was on light volume, it is worth noting that a recovery of most of the selloff couldn’t have occurred if there were big sellers out there.
Apparently, there is a very powerful underlying hunger for stocks on any dip whatsoever, which makes sense since stocks are fundamentally reasonably valued, there is simply nowhere else but stocks to earn a good return on one’s investment, and the fear of international financial contagion is beginning to lift.
I believe a period of consolidation following a largely uncorrected upmove since November would be healthy. It would give profit takers a chance to lock-in gains and reinvest in other stocks of interest, and it would give investors who sought a safe haven in treasuries, money markets, CDs etc. a chance to dump low-yielding instruments and buy stocks.
This may not happen now, unless triggered by news that our economy is stalling and/or that international economies are tanking enough to adversely impact our economy.
Greece won’t disappear entirely as a concern for the euro-area. Following the bond swap, its bonds are yielding between 14% and 19% and its yield curve is inverted, a bad sign. For now, it is off Page One. The Doomsters will now move on to Portugal and Spain to orchestrate fears of default.
CONCLUSION: I can’t rule out a deeper correction, but the technical action of the market later last week reduces the odds quite a bit. This does not mean we can’t trade in a sideways range as the market digests gains racked up since Q4 of 2011.
Last Wednesday I listed 5 negatives confronting the market. The first three (worries about Greece, Iran and oil prices) I said could go away quickly. Numbers 4 and 5 I (recession/slowdown in Europe and Asia and its impact on the U.S. economy) I said were more difficult to quantify. The crisis in Greece is past for now, it is believed Iran will yield to sanctions, and there are signs of a peak in the spiral of oil prices led by an expected economic slowdown in China, the world’s second largest consumer.
The unknown is how much the slippage in European, Chinese, Indian and Brazilian economies will impact the U.S. and only time will tell if that is worth worrying about.
TODAY: U.S. index-futures are mixed prior to the open. Most likely the DJIA will trade up to a smidge below 13,000 before backing off.
ECONOMIC REPORTS: The stock market doesn’t always march to the drumbeat of the economy. This time around, the intensity of the economic recovery is critical to a further extension of the bull market that started three years ago. This recovery must continue to gain traction, even accelerate to offset the drag of a slowing international economy if the market is able to move higher.
- Retail Sales (8:30 a.m.) Retail sales advanced 0.4% in January after no gain in December as a result of a slowdown in auto sales.
- Business Inventories (10 a.m.) Rose 0.4% in Dec. below the 0.7% rise in sales pulling down the stock-to sales ratio to 1.26.
- FOMC Meeting (2:15) Rates expected to remain same
- MBA Purchase Applications (7 a.m.) Measures application for mortgages with lenders. Apps jumped 8.4% for the week ended Feb. 24.
- Import/Export Prices (8:30 a.m.) Imports rose 0.03 in Jan., The numbers were goosed by petroleum prices.
- Jobless Claims (8:30 a.m.) Rose for the Mar. 3 week but the overall point is the big trend is down.
- Producer Price Index (830 a.m.) Rebounded 0.1% in Jan. after a like amount decrease in Dec.
- Empire State Manufacturing Survey (8:30 a.m.) This regional survey of business rose sharply in February to 19.53 the best reading in 18 months.
- Philly Fed Survey (10 a.m.) Rose 2.9 points to 10.2 in Feb. reflecting good business activity in the Mid-Atlantic manufacturing area.
- Consumer Prices (8:30a.m.) Rose 0.2% following no change in the prior two months.
- Industrial Production (9:15 a.m.): Was unchanged in Jan. after a 1.0% increase in Dec.Monthly reports have varied. Capacity utilization has trended up six out of the last seven months.
- Consumer Sentiment (9:55 a.m.) has been on the rise since August. It will be interesting to see if rising gasoline prices can reverse sentiments.
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“
March 1 DJIA: 12,980 “Bull Market Intact – But Correction Likely in Coming Weeks“
March 2 DJIA: 12,977 “Selective Opportunities – Don’t Get Careless“
March 5 DJIA: 12,962 “Up or Down? Week’s Economic Reports Hold Key“
March 6 DJIA: 12,759 “Technical Correction Underway For Wall Street“
March 7 DJIA: 12,837 “Not Yet! Market Will Probe for a Comfort Level“
March 8 DJIA: 12,907 “Uneasy Market Anticipates Peaking Gas Prices“
March 9 DJIA: 12,922 “Easy Does It! Market is Selective Buying Only“
March 12 DJIA: 12,959 “Bulls Hanging Tough Against Correction”
March 13 DJIA: 13,177 “Threshold of a Big Market Move?“
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.