Investor’s first read – Brooksie’s edge before the open
Wednesday, September 12, 2012 9:09 a.m.
DJIA: 13,323.36
S&P 500: 1433.56
Nasdaq Comp.: 3104.53
Russell 2000: 841.96
The big news today is the decision by Germany’s top constitutional court to allow the euro-area’s permanent bailout fund to proceed, though with a cap of about 190 billion euros on its liabilities before ratification, unless parliament decides to back extra funds.*
“We are an important step closer to our goal of stabilizing the euro,” says German Economy Minister and Vice Chancellor Philipp Roesler.*
The permanent European Stability Mechanism (ESM) is designed to replace the temporary European Financial Stability Facility (EFSF), which will be phased out next year.
The ESM would work with the European Central Bank (ECB) in bond buying designed to lower bond yields of economically and fiscally troubled countries like Spain and Italy. The ECB is prepared to buy unlimited quantities of short-term bonds of troubled countries seeking help from the EFSF and ESM.
The big news tomorrow will be news out of the Federal Open Market Committee regarding a stimulus plan for the U.S. economy, a third round of bond buying and the extension of its zero-interest rate policy to 2015.
News release times Thursday:
12:30p.m. – FOMC policy statement
2:00p.m. – FOMC forecast for unemployment, inflation and projections for the
federal funds rate in coming years.
2:15p.m. – Chairman Bernanke press conference
Expectations for a Fed bond buying program vary but are for slightly more mortgage-backed securities than Treasuries generally about $30 billion monthly for the former and $35 billion monthly for the latter.
In either case, the Fed plan is expected to be open-ended, i.e. no time and quantity limits.
WHAT IF?
In this business, you always want to ask that question. If the Fed decides NOT to announce a stimulus plan tomorrow, what then? The market takes a hit with the DJIA dropping to the 13,000 area (S&P 500: 1400).
CONCLUSION: We are moving closer to an effort to boost economies here and in Europe. Toss in China and Japan and you have a real springboard for global recovery. That would be huge ! This is a global problem, and the solution is global, unless there is to be a fragmented economic recovery.
FACEBOOK (FB) at $19.43:
Buying FB at the open is risky. While CEO Zuckerberg’s interview yesterday was upbeat, the stock’s higher price has taken a lot of that into consideration. Hopefully he given investors assurance that SOMEONE IS AT THE HELM AT FB AND PROBLEMS HAVE BEEN ADDRESSED AND THE TREND IS FORWARD, NOT NEUTRAL.
Resistance starts at $21.38, support is now $18.88.
Mark Zuckerberg, CEO, gave his first interview yesterday since FB went public in May. It was at the TechCrunch Disrupt conference in San Francisco.
Technically, the stock crossed $19.25 as I said yesterday was needed to turn it from a negative pattern to a positive one.
He spoke at 5:00 p.m. ET after the market closed. The stock jumped sharply. Zuckerberg explained that FB is going “mobile,” that it erred in its decision to code in HTML5, that it cost the company two years in progress. We couldn’t get the quality we wanted, he said, adding they had to start over and rewrite its applications code in “native,” which is capable of greater things.
He sees FB’s “search” feature as becoming big, noting it already gets a billion queries a day. While he was not specific about how FB will get to a strong revenue base, there was little question about the direction it was headed. “Going forward, it’s all about mobile”… that’s where users are spending more time, he notes.
Was that enough to turn the stock around?
I think it stops the bleeding. As for a sustained upturn, more specifics will be needed and there will be sellers on the way up and possibly today.
Its Sept. 4 low of $17.55 is looking pretty good right now, though a move down to a smidge below $19 as a “test” is possible.
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.
George Brooks
*Bloomberg.com
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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.
