Actionable insights straight to your inbox

Equities logo

Don’t Buy the Open

Investor’s first read - Brooksie’s edge before the openWednesday 26, July 12, 2012 9:15 a.m.DJIA: 12,676.05S&P 500: 1337.89Nasdaq Comp.: 2854.24Russell 2000: 769.31CONCLUSION: The spike in

Investor’s first read – Brooksie’s edge before the open
Wednesday 26, July 12, 2012 9:15 a.m.
DJIA: 12,676.05
S&P 500: 1337.89
Nasdaq Comp.: 2854.24
Russell 2000: 769.31

CONCLUSION: The spike in stock prices yesterday and in early trading today is what I was referring to in yesterday’s post. I credited the expected spike to better New Home Sales to be reported after the open and better Jobless Claims to be reported this morning before the open.

I was wrong about Home sales, they were down though mostly a statistical aberration. However, Jobless Claims were down 35,000 for the week ended July 21 to 353,000 far better than the forecast of 380,000. How believable are any of these numbers, the claims were up about the same amount the week prior ?

TODAY: Look for the DJIA to spike to 12,835 in early trading (S&P 500 to 1350) thanks to the Jobless Claims report. I never like to “buy a gap open” like the one I see happening this morning. Odds are, an investor will catch the highs for the day and even following days.

The biggest thing holding this market up is hope that the Federal Reserve will employ additional measures to prompt banks to lend, and businesses and consumers to spend.
We have a global shutdown, not just a U.S. slowdown.

Central bankers around the world are seeking solutions. What’s needed is assurance the economy and stock markets won’t crash. In absence of a unique, creative solution, the only alternative I can see is “time,” where demand, needs, liquidity and confidence in global leadership combine to drive economic activity. That environment would produce a wide ranging trading market, but not a big crunch. Yesterday, I repeated my warning that the June 4 rebound must hold, or else. I wrote that breaking the key support at DJIA 12,450 (S&P 500: 1310) would put the June 4 intraday lows of DJIA 12,035 (S&P 500: 1266) at risk, the penetration of which would lead to a greater decline, possibly to DJIA 11,500 &S&P 500: 1230).

So far, DJIA 12,450 has held. While today’s market action is encouraging, it is wise to bear in mind the potential for more downside.

Facebook (FB) is taking a hit today. Last week, while I was away, it broke support at $31.30 most likely in anticipation of earnings that will be reported today. Resistance was just too formidable in the $32 area. I still think it needs to work off sellers who got bagged by the IPO and collapse of the stock before it can mount any sustainable upmove. Currently it is in the kind of tailspin that can produce a selling climax, possibly a smidge below $20, most likely in the low 20s.

George Brooks
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.

A weekly five-point roundup of critical events in fintech, the future of finance and the next wave of banking industry transformation.