Investor’s first read – Brooksie’s edge before the open
Friday, February 17, 2012
DJIA: 12,904.08 S&P 500: 1358.04
My analysis yesterday morning before the open was D.O.A, as the Street shrugged of concerns that a Monday meeting of European finance ministers would raise doubts that a second Greek rescue would occur after all.
What’s more, U.S. economic reports including good numbers for Job Claims, Housing Starts and the Philly Fed (regional business) Survey, helped override concern for the European “thing.”
I believed there was enough uncertainty about a Greek bailout heading into a long weekend that traders would back off new buys and even do some selling – right reasons, BUT WRONG !
What can be learned from this ?
That there is a lot of money that believes the strength in the U.S. economy is for real, that in spite of Greece’s misfortune or fortune, the U.S. market is now marching to its own drumbeat, not Europe’s.
That was pretty powerful stuff yesterday and the kind of “in your face, we’re bringing it !” message the bulls have for the – doomsters, that establishes bullish “turf.” Even with a 10%-12% uncorrected up move preceding yesterday’s pop, the bulls were not deterred.
I have often referred to this phenom (and this may seem ridiculous) as the “submerging a beach ball” challenge, where you try to submerge one of those big beach balls, but can’t because it just keeps popping up. (!!!!) That is how a bull market behaves; it won’t be denied.
However, we are facing a three-day weekend, there is a big euro-meeting on Monday, so upside action today may be limited.
Katy bar the door ?
Maybe not today, but this could turn into a feeding frenzy at some point this year and confirm what I have been suspecting that money will stampede out of safe havens and into the stock market. If worries about a European meltdown vanish, who would ever want to sit on safe stuff earning nearly zilch in Treasuries, CDs, money markets, etc.?
Based on several yardsticks, price/earnings ratios notwithstanding, stocks are attractively priced. Based on the wide range of P/E ratios over the years, stocks have room to run.
Greece is serious stuff; a default would adversely impact the European Union and countries outside it. What cannot happen is for Spain, Portugal and especially Italy to develop a dire need for more help with a risk of default if they don’t get it. We are not going to worry about that now, but expect to doomsters to turn their focus on those countries as they desperately try to salvage their bearish position.
CONCLUSION: For most of February, the market has swung erratically up and down for most of February. Yesterday’s gain only recovered the prior day’s loss, which wiped out a late day gain the day before. Several days ago, I referred to this market action as if the averages were a penny stock being manipulated. It says a lot for timing purchases after a drop rather than after a rise.
The C.P.I. for January came in at a plus 0.2 pct. Vs. a gain of 0.1 pct. In December – acceptable.
The U.S. Leading Economic Indicators are expected to post a 0.5 pct gain for January, indicating the current economic recovery is for real.
This will be a busy week for economic reports, what’s important is that there is no serious evidence of slippage in the U.S. economic recovery which is one of the key reasons for the stock market’s recent strength.
- Retail Sales (8:30 a.m.): Up 0.1 pct in Dec, 0.4 pct in November and 0.7 pct in October, however latest strength came from autos, up 1.5 pct.
- Export/Import Prices (8:30 a.m.): Trending down in last 5 mos.
- Business Inventories (10 a.m.): Inventory/sales ratio unchanged last 5 mos.
- MBA Purchase Applications (7 a.m.): Measures mortgage applications at lenders
- Empire State Manufacturing Survey (8:30 a.m.): Rose sharply in December and January.
- Industrial Production (9:15 a.m.):
- Housing Starts (8:30 a.m.): Dropped 4.1 in December after a 9.1 pct rise in November.
- Jobless Claims (8:30 a.m.): Dropped another 15,000 for week ended February 4, bringing the 4-week average down to366,250.
- Producer Price Index (8:30 a.m.): Dropped slightly in December after November bounce.
- Philly Fed Survey (10 a.m.): Notched higher in January, though new orders were off
- Consumer Price Index (8:30 a.m.): Unchanged in December for second month in a row reflecting lower energy costs.
- Leading Indicators (10 a.m.): positive
Jan 23 DJIA: 12,720 “Europeans Seeking Long-Term Economic Cure“
Jan 25 DJIA: 12,675 “Consolidation, Correction Likely though US Stocks Hold Strong Against EU Turmoil“
Jan. 26 DJIA: 12,756 “Fed Would Raise Interest Rates If Inflation Picks Up“
Jan. 27 DJIA: 12,734 “Warning! Tradable Market Action Lies in Waiting“
Jan. 30 DJIA: 12,660 ““HUGE” Week for Economic Indicators“
Jan. 31 DJIA: 12,653 “All That Is Needed Is a Spark“
Feb. 1 DJIA: 12,632 “Week’s Economic Reports Could Be The Springboard“
Feb. 3 DJIA: 12,862 “Investors Beating the Bullish Tune“
Feb. 6 DJIA: 12,845 “Follow the Money as It Exits Safe Havens“
Feb. 7 DJIA: 12,878 “Market Held Up By Sneaky Buying“
Feb. 8 DJIA: 12,883 “Is It Safe For Bulls to Come Out and Play?“
Feb. 9 DJIA: 12,890 “BIG Money Buying the Future“
Feb. 10 DJIA: 12,801 “Can a Greek Deal Be Accomplished Over the Weekend?“
Feb. 13 DJIA: 12,874 “Easy Does It! Some Selling Into Good News Expected“
Feb. 14 DJIA: 12,878 “Investors Should Expect “Market Churn”“
Feb. 15 DJIA: 12,780 “Market Churn to Include Brief Correction“
Feb. 16 DJIA: 12,904 “Another Snag in Greek Bailout + Long Weekend = Extended Correction“
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.