Facebook Head-Fake?

George Brooks  |

Investor’s first read - Brooksie’s edge before the open
Wednesday, September 5, 2012 9:13 a.m.
DJIA: 13.035.94
S&P 500: 1404.94
Nasdaq Comp.: 3075.06
Russell 2000: 822.14

We got mixed technical signals yesterday. Advancing issues for the DJIA and S&P 500 beat decliners, but the upside/downside volume did not confirm. The Nasdaq Comp. and Russell 2000 were up.

Yesterday I referred to the “Best Six Months” * for owning stocks, which historically has run from October 31 to April 30. I will refer to this phenom frequently in coming months because it has been consistent, though not perfect.

Since 1950, August and September have posted poor performance, but October through April have been sizzlers suggesting September often offers an opportunity to buy at lower prices.

The ISM Manufacturing Index was off slightly in August and Construction Spending more so (see below). Reports like this, though not reflecting a sharp plunge, may be enough to trigger Fed stimulus this month.

The question now is, has the market discounted Fed action, i.e., will it decline if the FOMC announces a new round of measures to stimulate our economy next Wednesday.

Tomorrow, European Central Bank (ECB) will announce its decision on its president Mario Draghi’s bond-buying proposal designed to ensure the euro’s survival.

If we end up with a coordinated effort by government and financial institutions worldwide to stimulate respective economies, we could see a significant turnaround – a stretch, but not to be overlooked by investors.

TODAY: Resistance at DJIA 13,144 (S&P 500: 1413) must be decidedly penetrated to reverse a correction. Anticipation of Fed action next week, even the ECB;s decision on bond-buybacks tomorrow, could do it. I am wary of a rally failure.

FACEBOOK (FB) at $17.73:

FB’s stock will open on the plus side this morning as a result of its announcement of a $2 billion share buyback at $19 a share pursuant toretiring them. It will NOT be buying the shares in the open market. It’s too complicated to explain here on deadline. I don’t see it as a game changer unless more announcements are forthcoming that shed light on how the company is going to monetize its user base.

Yesterday, two major brokerage firms re-enforced “Overweight” ratings, one with a price objective of $30 down from $45, the other with a price objective of $32, down from $38.

I really wonder if they would have set the original target (and current one) at those levels if they were independent analysts rather than one working for a big house.

My guess is they are much smarter than that, but are just boxed-in by the constraints of “a firm.”

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. At some point, I will drop coverage. I would like to see readers through the full cycle, from the $34 where I picked it up as “going lower” down to a bottom.

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ISM Mfg. Index (10:00): Was 49.8 in July vs. 49.7 in June. New Orders were 48.0 vs. 47.8 in June.

Construction Spending (10:00): Up 0.4% in June after a 1.6% rise in May.


Productivity (8:30): Improved in Q2 in spite of slowing in output as it jumped at an annual rate of 1.6% vs. a drop of 0.5% in Q1.


ADP Employment Report (8:30): Private payroll employment rose 163,000 in July following a revised 172,000rise in June.

Jobless Claims (8:30): Claims were unchanged in the week ending August 25 at 374,000 bringing the 4-week average to 370,250.

ISM Non-Mfg Index (10:00): Rose 0.5 to 52.6. New Orders rose 1.0 points to 54.3. Business activity jumped 5.5 points to 57.2.


Employment Situation (8:30): Increased 163,000 in July after a gain of only 64,000 un June and 87,000 in May. Private payrolls gained 172,000 in July after a gain of 73,000 in June.. The average workweek held at 34.5 hours, unemployment increased to 8.3% from 8.2% in June.

George Brooks

*Stock Trader’s Almanac: More on this in coming weeks.
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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