Investor’s first read – Brooksie’s edge before the open
Monday, June 25, 2012 9:11 a.m. ET
S&P 500: 1335.02
Nasdaq Comp.: 2892.42
Russell 2000: 775.16
TODAY: Rough start, DJIA slated to drop 100 points within the first 15 minutes of trading. Minor support is DJIA 12,310 (S&P 500: 1303).
The outlook is gloomy, not just because the news environment is negative, but because uncertainty dominates the picture.
However, investors must be prepared for the worst case NOT happening, that the market reverses a sharp plunge this week by way of a selling climax/one-day reversal and stabilizes with a generally upbeat bias. We should know a lot more next week at this time.
If uncertainty still rules next week, more downside will be needed to discount that uncertainty and any new negatives that surface this week.
Regardless of what happens this week, we still have the uncertainties of the fiscal cliff and which sectors will be hurt by more than a trillion dollars being cut from government programs next year and whether tax cuts will be extended.
This situation is more suited for the nimble trader who can afford to take a few punches in order to get more of his own in.
European leaders appear resolved to save the euro with a host of proposals offered from different sources – nothing new here. While a major emphasis on solving their sovereign debt woes will be economic growth, they better get on the same page with specifics pronto before global recession removes that option.
The European summit meeting starting on Thursday may produce some visibility as to whether the euro can be saved, or it may simply extend “uncertainty” for another time, summit, whatever.
Get ready for a new euro-term – “dissolution risk,” what happens if you are in line to be compensated in euros, but the euro no longer exists. (see Bloomberg.com, “U.S. Banks Aren’t Nearly Ready for Coming European Crisis.” – Simon Johnson)
Facebook (FB): It definitely looks like the shorts are getting chased. The stock’s strength on a day that the DJIA dropped 250 points was more than the shorts could deal with. The stock had a “lid” on it (resistance) for four days, generally around 32. Friday, it broke up through that resistance with the help of a buy recommendation by Brian Nowak of Nomura Equity Research. At the close it reversed an attempt to decline and closed firm on increased volume. It will be tested today with a down market looming, a host of economic reports, more dysfunction among European leaders and the Supreme Court ruling in the Obama administration’s healthcare program. Downside risk is 31 – 31.5. A big “flush” in the overall market can hammer it lower. I don’t own FB, nor have I ever owned it. It was such a hyped and botched IPO, I thought it was important that I cover it for a while.
ECONOMIC INDICATORS: The Street is watching the economy for enough signs of weakness to prompt measures by the Fed to stimulate the economy. (bad is good !). Interest rates can’t get much lower. People on fixed incomes are without income on savings, insurance companies are forced to jump premiums because their treasuries yield next to nothing. Generally, they make their money on investments not insurance risk.
New Home Sales (10:00): Jumped 3.3% in April after a 7.3% drop in March and 5.6% rise in February.
Dallas Fed Manufacturing Index (10:30): Dropped to a minus 5.1 in May from a minus 3.4 in April
S&P Case-Shiller Home Price Index (9:00):Was up 0.1% in March after a 0.2% rise in February.
Consumer Confidence (10:00): declined 3.8% in May to 64.9 from a revised 68.7 in April.
Richmond Fed Mfg Index (10:00): Dropped 10 points to 4 in May
Durable Goods (8:30): Unchanged in April after a 3.7% drop in March
Pending Home Sales Index(10:00): Jumped sharply 5.5% in April.
GDP (8:30): Second estimate. Real GDP grew at a 1.9% annual rate vs an initial estimate of plus 2.2%. Q4 was plus 3.0% annualized.
Jobless Claims (8:30): Was 387,000 for the week ended June16 vs. revised 389,000 the week prior.
Kansas City Fed Mfg Index (11:00):Rebounded to 9 in May from 3 in Apil.
Personal Income (8:30):
Chicago PMI (9:45):
Consumer Sentiment (9:55):
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.