IMF Sees Worse Global Economy

George Brooks |

The market held at its minor support of DJIA: 13,565 (S&P 500: 1455). That support must hold or a drop to DJIA: 13,520 (S&P 500: 1450) is expected.

The market needs some buyers this week. So far the technical pattern is positive, but cannot afford to have institutions step back in face of new negatives – IMF’s report and Q3 earnings.

The stock market has pressed upward even in face of a host of uncertainties and negatives. I think a major reason for that is money managers don’t have anywhere else to invest their clients’ money. The market appears to be in “safe mode” as long as all major countries are stimulating their economies.

That works until it becomes obvious that cash “in wait of better prices” is a better investment. We aren't seeing that yet in the market’s action.

Investor’s first read - an edge before the market opens
DJIA: 13,583.65
S&P 500: 1455.88
Nasdaq Comp.: 3112.35
Russell 2000: 838.41
(Tuesday, October 9, 2012 (9: 09 a.m.) As noted yesterday, Q3 earnings take center stage this week along with the elections, Europe and fiscal cliff. We will know how much of Q3 earnings are already discounted in stock prices within two weeks.

Alcoa (AA) will report after the close today, however earnings “scorekeeper,” FactSet notes Alcoa’s results have little predictive value in forecasting results for the S&P 500’s companies, even though the company’s product mix encompasses the auto, construction and appliance industries.

The NFIB Small Business Optimism slipped 0.1 points to 92.8. Business owners are concerned by the uncertainties looming as prospects increase for a tumble over the fiscal cliff next year.

While we have been prepared for a global recession for months, the 188-member International Monetary Fund (IMF) now sees an “alarmingly high risk” of an even deeper slump, with a 1-in-6 chance of annual growth slowing below 2%.

Confidence in the global financial system lags as does bank lending.*

The IMF urges the United States to avert the automatic tax/spending cuts that will occur if the fiscal cliff is encountered. Additionally it urges a more integrated monetary union. The IMF issued forecasts for all major economies.
Finance ministers of the 27 European Union (EU) countries meet today prior the summit on October 18-19. Yesterday the 17-nation euro-area officially declared the European Stability Mechanism operational, though the most likely nation, Spain, has yet to decide to tap it.

FACEBOOK (FB - $20.40): FB ran into a Wall at $22.50 last week, started to slide on Thursday and hammered again yesterday, but managed to stabilize above $20 with volume picking up at the open and close.

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 on May 21, I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38.

George Brooks
*Bloomberg.news
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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.

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