Investor’s first read – Brooksie’s edge before the open
Friday, March 9, 2012 9:20 a.m. ET
DJIA: 12,907.94 S&P 500: 1365.91
Today’s reaction to a good Employment Situation report may determine whether the correction that started Tuesday will continue. If it does, the question is whether it plays out as a selloff down to lower levels like DJIA 12,300 – 12,400 (S&P 500: 1295- 1302), or trends sideways-to-down with the upper limits at DJIA 12, 975 (S&P 500: 1375).
That support level really only represents a 5% – 6% correction. Granted, the correction could become worse if current negatives worsen or new negatives surface at the point where the market is poised for a rebound, but we don’t know that at this time.
While Wednesday’s rebound was technically normal, yesterday’s push came on significantly reduced volume, a sign that buyers were wary of paying up for stocks they saw at lower prices Tuesday.
What could be a game changer is the market’s positive reaction to the strong Employment Situation report, which reflects increasing new hires across the board, except for construction. Employment in February was a plus 227,000, vs. a projected 210,000. Any rebound in housing and these numbers increase dramatically. (I expect that to happen). The Unemployment rate remained at 8.3%.
I am impressed, but not surprised at the resilience of the market here. Greece has vanished as a negative for now, I think oil prices are peaking and the crisis with Iran doesn’t seem to be getting worse.
The key to another leg up is the direction of the global economies, namely Europe, China, Brazil and India, How much will they slow, which ones may slip into recession ?
Then too, how much will slippage in international economies impact the U.S. ?
Unlike Greece, oil and Iran, answers to these issues won’t be known overnight.
That means the market will be dealing with uncertainty, which stands to put a damper on aggressive investing.
But this bull market has pressed upward in face of a wide variety of uncertainties for worse than what it is faced with today.
CONCLUSION: Bullish, but thinking the market needs a rest for several weeks. Even if it does, selective opportunities will be abundant. This is an environment where “timing” of purchases is critical. A poorly timed purchase can result in a paper loss lasting many months.
TODAY: If the Employment Situation report was a barn burner, I think the market would be sizzling before the open. The numbers were very good, but heading into the weekend odds favor lower prices today with support starting at DJIA 12,825 (S&P 500: 1355).
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“
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.