Investor’s first read - Brooksie’s edge before the open
Friday, August 17, 2012 9:09 a.m.
S&P 500: 1415.51
Russell 2000: 813.08
Yesterday’s 85-point (0.65%) push resolved the market’s consolidation on the upside. The S&P 500 had a comparable move, the Nasdaq Comp. and Russell 2000 moved up nearly twice as much. Breadth of the market (advancing issues/declining issues) was positive by a healthy margin.
This week’s economic news was mixed. I think the absence of a “crisis” helps.
Uncertainties persist, but the doomsday stuff is not getting headlines.
Consumer Sentiment comes at 9:55 and the Leading Indicators at 10 today.
It’s too early to assess the severity of economic slides in Europe, China and Japan, ergo their impact on the United States.
German Chancellor Angela Merkel reasserted her support for efforts to preserve the common currency, the euro.
The Fed stands ready to goose the economy if it begins to tank.
CONCLUSION – a stock pickers’ market, selective but not in the bet-the-ranch category. Look for a mixed open, maybe down a smidge. Yesterday’s breakout has further to run, possibly up 125 Dow points before noon, depending on the Consumer Sentiment and Leading Indicators reports. Any ugly surprises there would take the market down sharply.
Disturbing trend: I access a lot of info on the Internet. I make copies to refer to when writing, other info I read over quickly in search of something of value. More and more, I am encountering a video interview. I can scan an article in a fraction of the time it takes to view a video. I refuse to play their game. What are they thinking ?
As I expected, FB got pounded by sellers in early trading yesterday, as 271 million shares became eligible for sale due to the end of the lock-up period associated with its IPO. This source of selling, plus selling from investors who have big losses and just want out, totaled 157 million shares – a mini “selling climax.”
Down 48% from its ridiculous May IPO price of $38 a share, FB is now becoming attractive to long-term buyers looking out 3 to 5 years, as well as to traders who sold short at much higher prices and are eager to lock in some profits.
The big question now is, can their buying absorb the huge amounts of stock coming on the market and at what price ?
While down $1.33 yesterday, FB did hold at its Aug low of $19.82, suggesting the possibility of a “double bottom (tech talk). Unfortunately, it closed near its low for the day, a bad sign.
We should get that answer today. Unless we get thunderous buying volume, I would be suspicious of any rally here.
I still see the possibility of FB getting down to $16.88, or so where I see 250 – 300 million shares trading in a selling climax.
At this point, the stock has declined enough to represent an attractive long-term buy for investors with plenty of cash to work and no pressure on short-term performance, and there are those types out there.
They buy “in-size” and need sellers in-size to accumulate a position without moving the stock.
If they show up today, they could take on all sellers and turn FB around.
A”no-show” by BIG buyers calls for a rally that loses steam. Once investors see that happen, they scramble for the exits, thinking, here we go again. If it happens today, odds are we will see a selling climax to my target price of $16.88 next week, possibly as early as Monday in the first 20 minutes of trading.
ECONOMIC REPORTS: Big Week for economic reports.
NFIB Small Business Optimism Index (7:30) – Down 0.2 points in July to 91.2 in line with general economic weakness.
Producer Price Index (8:30) – Up 0.3% in July after a 0.1% rise in June and 0.1% increase in May. Prices at the wholesale level were up 0.5%, corn was up 35%.. Core, excluding food and fuel was ahead 0.4%. Year over year core was up 2.5%.
Retail Sales (8:30) – July retail sales were up 0.8% with all components contributing after softer than expected sales in June.
Business Inventories (10:00) – Q2 inventories rose 1.2% vs, a 1.6% rise in Sales in the quarter were unchanged bringing the Inventoy/sales ratio up to1.27.
Consumer Price Index (8:30) – Unchanged in July vs. no change in June. Ex food and energy, the CPI rose 0.1% following a 0.2% in June.
Empire State Mfg Survey (8:30) – declined 5.85 points in the August 12 reporting period vs. an increase of 7.39 points in the prior period.
Industrial Production (9:15) – Up 0.6% in July after an increase of 0.1% in June. Capacity Utilization improved to 7.9%
Housing Market Index (10:00) –Surged 6 points to 35, the biggest gain in 10 years. The index reflects the sentiments from a survey by the NAHB regarding the economy and housing market.
Jobless Claims (8:30) – Rose 2,000 in the August 4 week to 366,000 bringing the 4-week average to 363,750.
Housing Starts (8:30) – Declined1.1% in July vs. a gain of 6.8% in June. Permits were up 6.8% vs. a drop of 3.3% in June.
Philadelphia Fed Survey (10:00) – dropped 7.1% in August vs. a decline of 12.9% in July. Estimates ranged between a minus 17.9 to a plus 5.0.
Consumer Sentiment (9:55) – Flat in July
Leading Indicators (10:00) – Down 0.3% in June after a rise of 0.4% in May. This is a composite index of 10 economic indicators.
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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