Investor’s first read – Brooksie’s edge before the open
Thursday, August 23, 2012 9:09 a.m.
S&P 500: 1413.49
Nasdaq Comp.: 3073.67
Russell 2000: 812.56
The major market averages reversed a downswing yesterday when the minutes of the FOMC’ most recent meeting were released indicating the Fed’s intention to employ additional stimulus to the U.S. economy if it does not soon show signs of a pickup.
The willingness of the Fed to act didn’t come as a surprise, but its potential imminence obviously did and stock prices rebounded.
The FOMC’s next meeting will be on September 12 -13 when it could announce additional stimulus. However, the Street may get an indication of its intent in advance when Fed Chairman Ben S. Bernanke speaks on Friday August 31 at the Kansas City Fed’s annual symposium at Jackson Hole, Wyoming.
Not all sectors of the economy are struggling. The housing market, which led the economy down in 2007 -2009, is rebounding and retail sales have been stronger than expected.
Jobless Claims rose 4,000 for the week ending Aug. 18 – not a game changer.
Fed action may be accelerated in light of the weakness in global economies, especially China, even a slowing in Germany.
One matter out of the Fed’s control is the “fiscal cliff.” The nonpartisan Congressional Budget Office (CBO) has forecast a recession next year IF the fiscal cliff isn’t dealt with effectively. That’s entirely up to Congress, which refused to deal with it a year ago and is now faced with a deadline so politically charged, it probably won’t deal with it before the November election.
Congress’ popularity rating is around 10% favorable, below that of telemarketers. At least the latter are trying to close a deal – or get fired.
That said, do not be surprised if we get a proposal offering a compromise on spending vis-a-vis a tax cut extension to counter the voters’ angst as a result of its unwillingness to strike a deal last year and avoid sequestration.
That would be a clever political ploy, and add some upside to the stock market as it takes an uncertainty off an already cluttered table.
CONCLUSION: So, what’s really new here ? Clearly NOT that the Fed will intervene. It has made that clear ad nauseam. It must be the timing.
The Street must see it happen. With the DJIA up more than 800 points in just one month the announcement will likely be greeted by a rally failure and a sharp correction.
Support for the downside this week is still DJIA 13,070 (S&P 500: 1398). Breaking that, look for DJIA 12,915 (S&P 500: 1386).
Facebook (FB) did reverse the “Controlled correction” I referred to yesterday with a rally, but it was not on heavy volume. Expect FB to move up to $19.77, stall, then sell off into the weekend.
What could push it higher?
That thunderous volume we didn’t get at lower prices yesterday !
Odds of that happening?
Slim – at this level, huge after another plunge.
This is the week I said FB would hit its low. So far I am spot-on except for two things. It plunged as expected, but didn’t drop sharply enough (my forecast $16.88) and didn’t get that deck-clearing volume it takes to shake the tree of all its sellers.
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.
ECONOMIC REPORTS: Light week for economic indicators.
Chicago Fed National Activity Index (8:30): An index of 85 national macroeconomic indicators released monthly. July’s index slipped to 0.05 from 0.02, but 49 of the 85 indicators used were positive, 36 negative.
Existing Home Sales (8:30): Increased 2.3% to a 4.47 million annual rate. Estimates ranged between 4.3 million and 4.8 million. The median price of an existing home rose 9.4% to $187,000 from $171,000 a year ago.
Jobless Claims (8:30): Up 4,000 for the Aug. 18 week to 372,000 bringing the 4-week average up 3,750 to 368,000.
PMI Manufacturing Index (9:00): Index was 51.4 in July down from 52.9 in June. New Orders were 51.0 vs, 51.9.
New Home Sales (10:00): Dropped 8.4% in June after a gain of 6.7% in May and 1.7% in April.
FHFA House Price Index (10:00): Increased 0.8% after a 0.7% increase in April. Year over year gain is 3.7%. in May.
Durable Goods ( 8:30): Increased 1.3% in June after a 1.5% increase in May. Both defense and nondefense aircraft orders rose, motor vehicle sales declined. Ex-transportation orders dropped 1.4%
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.