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Economy Sucking Wind, Not Tanking

Investor’s first read - Brooksie’s edge before the openThursday August 2, 2012 9:15 a.m.DJIA: 12,976.13S&P 500: 1375.32Nasdaq Comp.: 2920.21Russell 2000: 771.11So far, this week’s

Investor’s first read – Brooksie’s edge before the open
Thursday August 2, 2012 9:15 a.m.
DJIA: 12,976.13
S&P 500: 1375.32
Nasdaq Comp.: 2920.21
Russell 2000: 771.11
So far, this week’s economic reports are mixed. I sense they are just more of the same, i.e. telling us this recovery is sucking wind, but not tanking.
Apparently, the Fed sees it the same way, opting to defer additional stimulus until September.
I believe the sharp rally that started July 24 was in hopes the Fed would announce action yesterday.
CONCLUSION: If the Fed was seriously worried about the survival of this economic recovery, it would have acted yesterday. It must see the weakness that has developed in recent months as “most likely” temporary, primarily in response to the uncertainty created by Europe’s woes, the November elections and the looming “fiscal cliff.”
Who can blame businesses and consumers for backing off.
But progress has been made in Europe, clearly assurances that its leaders will do their best to save the euro, and as noted yesterday, there are a lot of positives to buying equities over the longer term as soon as we get a better handle on the current uncertainties/negatives. Again – PATIENCE ! Recoveries from near-meltdowns like we had in 2008 – 2009 take time.
TODAY: When new measures to stimulate weren’t announced by the Fed at 2:15 yesterday, stocks took a hit, but stabilized, as investors realized that the Fed will step in if economic conditions worsen. I see the market dropping to the DJIA:12,800 (S&P 500: 1360) in early trading today.
Facebook (FB: 20.88) Again FB took a pasting yesterday, indicating investors are hitting the panic button, But, at 44 million shares, trading was below the daily average of 48 million. Based on its technical pattern and the fact that last Friday’s high-volume selloff did not mark a conclusive selling climax, I expect another one to come. I think the low will have to come below $20 and it is unlikely now that that can happen this week, as I expected. My worst case scenario is for a low is at $16.88, where it would be for a fraction of a second before rebounding to $18 – $19.
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I did start covering FB after the IPO, because I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. There are cases where a company offers a great product/service, but its stock isn’t a good buy.
Dallas Fed Economic Rpt (10:30a.m.): The Index plunged in July to a negative 13.2 from a positive 5.8 in June. New orders dropped to 1.4 from 7.8. These were the first negative readings in 10 months.
Personal Income/Outlays (8:30a.m.): Rose to $61.8 billion (+0.5%) in June, Disposable P.I. rose $52.4 billion (+0.4%). Personal Consumption Expenditures declined $1.3 billion in the period.
S&P Case-Shiller 20-City Home Price Index (9:00a.m.): Average home price in May increased 2.2% over April. !7 of the 20 regions surveyed showed increases.
Chicago PMI (9:45a.m.): Rose slightly in July to 53.7 from 52.5 in June. New Orders were up to 59.9 from 51.9, but employment sagged to 53.3 from 60.4.
Consumer Confidence (10:00a.m.): unexpectedly rose to 65.9 from 62.7 well above projections for 61.5. Lower gas prices and an improving housing market helped boost sentiments.
ADP Employment Rpt (8:15a.m.): Jobs increased an estimated 163,000 in July vs. a 176,000 jobs in June and 136,000 in May.
PMI Manufacturing Index (9:00a.m.): Declined to 51.4 in July from 54.0 in June, New Orders dropped to 51.0 from 53.7.
ISM Manufacturing Index (10:00a.m.): Declined to 49.8 in July from 47.7 in June. New Orders increased slightly to 48.0 vs 47.9 in June
Construction Spending (10:00a.m.): Advanced 0.4% in June vs. a 1.6% jump in May. The increase was driven by private residential spending which increased 1.3% after a 3.1% jump in May.
Jobless Claims (8:30): Plunged 35,000 for the week July 21 after a rise of 36,000 the prior week.
Factory Orders (10:00a.m.): Jumped 0.7% in May after a like decline in April.
Employment Situation Rpt (8:30a.m.): Rose a minor 80,000 in June after an increase of 77,000 in May and 68,000 increase in April.
ISM Non-Manufacturing Index(10:00a.m.): Declined 3.0% in May to 52.1.

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.

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