Economy Will Continue to Slump, But Crash is Unlikely

What’s going on here? Why is the market going up in face of uncertainties here and abroad? Aren’t most foreign countries flirting with a recession? Isn’t the U.S. economy at risk also? Doesn’t Congress have to address the Bush-era tax cuts and painful spending cuts?

Answer: All these uncertainties and negatives are known and factored into the analysts’ decisions and the algorithms that dictate buying and selling of securities.

Investor’s first read – an edge before the market opens
DJIA: 13,515.11
S&P 500: 1444.49
Nasdaq Comp.: 3113.53
Russell 2000: 840.31
(Tuesday, October 2, 2012 (9:14 a.m.)

Money managers MUST put money to work for clients and their own portfolios, even if risk varies between “high” and “very high.” CDs, Treasuries and money markets don’t cut it – just no return. Either work the money, or someone else will be found who will.

The current rally is the 7th since the June 4 lows. All followed a correction. What’s key is, the ensuing corrections started at successively higher levels, tracing out an upbeat pattern.

It’s a tug of war and the buyers are winning, but only by a hair. The amount of cash earmarked for stock does not change when a stock is bought, because that transaction then has a seller who now has cash to invest.

TODAY: After yesterday’s spurt, resistance is now DJIA 13,595 (S&P 500: 1456), and that resistance is not formidable in face of the pressure on money managers to accumulate stocks.

YESTERDAY’s STRENGTH:
Stocks got off to a good start yesterday, initially helped by a rally in Spanish bonds after stress-tests indicated the nation’s banking system was stronger than thought,

The ISM manufacturing Index came in well above projections. The ISM jumped to 51.5 in September from 49.6. The Index comprises more than 300 manufactures for employment, production, new orders, supplier deliveries, and inventories.

While the PMI Manufacturing Index slipped four tenths in September to 51.1. Construction Spending declined 0.6% in August but the housing component was strong. Why would the market rally if two of three indicators were off ?

These indicators are telling us our economy is not tanking. Slumping along – Yes! Falling apart – No!

FACEBOOK (FB – $21.99):

Friday: FB rallied strongly from the opening bell Friday, followed through in early trading Monday and now looks like it has traced out a double bottom and possibly a “Head and Shoulders” reverse pattern with the potential of returning to the mid-20s.

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.

NOTE:

If you want a good summary of current economic indicators including stack and line charts of each go to www.mam.econoday.com. I can only touch on these here, but this site gives you a more detailed picture. Ne charts and the calendar of releases for the following week are posted Sunday morning. Be sure to access its “Resource Center – U.S. & International Recaps at the top of the home page. Excellent recaps!

George Brooks
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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.