HIGHLIGHTS TODAY: Big investment picture, fiscal cliff, stock market correction, presidential election, Unemployment rate, leading indicators, housing, jobs, euro-discord, economy, recession, corporate earnings, Google, Facebook
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CONCLUSION: Right now, my near-term target for this correction is DJIA 12,720 (S&P 500: 1360)
A lot can happen over the next two months. The election is the biggie, but then there is the fiscal cliff and the degree to which the euro-recession impacts our economy.
The new negative is corporate earnings. The Street expected them to be flat-to-down in Q3, but CEO guidance and analyst revisions may be a curve ball the quant’s computers have trouble hitting.
If only Congress was capable of compromise. That would lift a huge cloud of uncertainty hanging over consumer and corporate spending and the latter’s decision to move ahead.
Jobless Claims for the week ended October 20 were down 23,000. Durable Goods were up 9.9% in September vs. a drop of 13.1% in August due to orders from Boeing, which “missed the August report and hit in September. The futures did not react to either report.
TODAY: The S&P 500 hit a wall at resistance 1420 yesterday, the DJIA fell a smidge short of its 13,172 resistance. Both tumbled at the close. Minor resistance to the upside is now DJIA:13,148 (S&P 500: 1415).
Investor’s first read – an edge before the market opens
DJIA: 13,077.34
S&P 500: 1408.75
Nasdaq Comp.: 2981.61
Russell 2000: 813.65
(Thursday, October 25, 2012 (9:09 a.m.)
. The market is looking for a comfort level where it discounts the new negative, corporate earnings, as well as what we already know, the election and the “cliff.”
If any candidate has an ace up their sleeve, now is the time to play it. The most likely prospect would be something related to a solution for the fiscal cliff. Then to, there is IRAN !
Since the Republican Congress has been the primary block to solving the fiscal cliff, I would say the cliff would be their play. Iran, even Syria, would be something President Obama could pull off.
Europe ? Some good news for a change. The U.K. has emerged from its double-dip recession thanks to a strong Q3 GDP report. Hong Kong’s Hang Seng Index was up 0.2% yesterday the 10th day in a row based on the belief that China’s economy will respond to lower interest rates.
Fiscal cliff ? If not addressed by Congress before December 31, the damage done by automatic spending cuts (sequestration) and the expiration of the Bush-era tax cuts is unthinkable. Worries about this have crimped consumer and corporate spending most of the year. Congress is not expected to address the issue until after the elections, but with holidays in November and December, that leaves little time for decisions. The “press” is preoccupied with the campaign now, but will be all over this one after November 6.
WARNING – I have been dead wrong on the timing of this, but buying long-term bond funds with interest rates at historic lows (bond prices at historic highs) is risky. In the event that the U.S economy is perceived to be gaining traction and key economies abroad likewise, interest rates will rise and bond prices fall.
REPEATING THE FOLLOWING FOR NEW READERS:
Winner on November 6 ? Was there a political message here ? Governor Romney has closed the gap, but President Obama won the last two debates.
Granted, you don’t have to look far on Wall Street for detractors of the president, but if he is poison for stocks why has the stock market advanced 64% since he took office. Granted, some of the bounce-back is due to the fact the market was down 55% over the preceding 15 months before he took over. It had to rebound.
But, wait a minute. Markets like incumbents to win, and get upset when they lose, since it introduces change which spells uncertainty which markets hate.
Since WWII, there were no major losses in October when incumbent parties retained the White House.* The DJIA closed at 13,437 on September 28 and is now 13,102 with 6 trading days left in this month. Is the market forecasting a Romney victory, or is it just reflecting a photo finish, and needs a few more days to decide.
FACEBOOK (FB – $23.22):
Today: FB was up $5 in pre-market trading yesterday in response to a better-than-expected earnings report after the close Tuesday. Revenues were up 32% over the quarter a year ago . Non-GAAP earnings were $0.12 a share, after adjustments, GAAP earnings were down $0.02 a share.
Based on the frantic buying yesterday, I suspect shorts are scrambling to cover positions. Some buyers carelessly placed orders to buy without a limit price. Buying after a 25% jump is risky, especially with the potential for a large amount of stock coming on the market from the IPO lock-up in coming months.
Yesterday, Bank of America/MerrillLynch, Citigroup and Stifel Nicolaus upgraded FB to a BUY. That suggests their research departments expect the lock-up shares will be absorbed with little effort, not to mention selling by investors who bought under $20.
If they just upgraded FB to a buy, what was it two days ago ? Is it smart to buy a “gap” open ?
The issue here has always been, can FB monetize its 1 billion user base ?
Management’s answer to that question is that it is “just getting started” with its heavy focus on the “mobile” devises market.
Yesterday’s strong surge on 227 million shares solidifies its base in the $19 area. If it pulls back from here, it should find support around $20.50. Near-term, upside is limited until the lock-up shares, profit =taking and even loss-taking are out of the way.
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 on May 21, I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, 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 of $16.88. On September 4, it hit $17.55, its low since its IPO at $38.
George Brooks
*Stock Trader’s Almanac: This is a “must own” publication, loaded with daily, weekly, monthly savvy. It is “the source” for strategies, seasonalities, recurring events, useful stats. Published annually, I have used it every year since 1968. Nothing compares !
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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.
