Yesterday’s rebound was a combo of institutional investing in the first day of a new month, as well as pent up buying that wasn’t completed on Wednesday, the first day of trading after the Sandy shutdown.
It also got some juice from upbeat economic reports on jobs and business activity.
While I find it difficult to believe, someone may have known what today’s Employment Report numbers were in advance, or maybe they just had good instincts.
October employment was up 171,000 vs, 148,000 in September, revised up from 114,000. Unemployment was 7.9%, up from 7.8%. Factory Orders come at 10 o’clock.
Next Tuesday’s elections are the real driver of stock prices over the next three days, and that is a tough read. Short-term a Romney win would likely be followed by a rally, an Obama re-election would be followed by a decline, but only briefly.
Beyond the election is the fiscal cliff – spending cuts and tax increases, if Congress fails to act. Then too, there is the impact of Sandy on the economy, the impact of Europe’s economic woes and consequently corporate earnings in coming quarters.
Investor’s first read – an edge before the market opens
DJIA: 13,262.62
S&P 500: 1427.59
Nasdaq Comp.: 3020.06
Russell 2000: 827.85
(Thursday November 1, 2012 (9:12 a.m.)
POLITICS:
It would seem that a Romney victory would be good for the stock market, but how much better than an increase in the DJIA of 67% since President Obama took office, plus survival from the Great Recession and an economy that has recovered, though slowly.
Obama is a “known,” Romney is as yet, an “unknown.”
That’s what has to be considered in the business of investing, politics aside.
As I noted previously, no decline in October has ever occurred when the incumbent kept his office. The DJIA closed at 13,437 on September 28. Yesterday, it closed at 13,262.
What may be an exception here is the fact October didn’t start to stink until 7 days ago, and that may be due to flat-to-down corporate earnings and the prospect for revisions in future projections. The October pattern has usually been accompanied by a down September, which this year was a boomer.*
Like it or not, we will just have to wait for Tuesday.
The storm hit at a time when the economy was struggling to gain traction. While certain sectors of the economy will benefit from spending to rebuild ravages areas, it won’t be enough to offset the huge losses incurred, which currently are estimated to be north of $25 billion. The damage could reduce the annual rate of growth for Q4 GDP by 0.5 percentage points, bringing it down to 1.6%. But spending on a
recovery stands to add to the economy in coming quarters – not exactly a wash, but an offset.
CONCLUSION:
Key support is DJIA 13,040 (S&P 500: 1403) A break below those levels calls for a break below 13,000 for the Dow and 1400 for the S&P).
I believe an increased cash position is justified. How large depends on one’s tolerance for risk. I do believe we are looking at an exceptional buying opportunity, I just don’t have a feel for it “today.”
A cash reserve would put an investor in position to capitalize on it when it shapes up.
Do not forget that we have entered the “Best Six Months” for owning stocks (November 1 to May 1).* This is one of the most consistent seasonal patterns. With the election and looming negatives, the “launch” is difficult to pinpoint, but odds favor it is not far away, just at lower prices.
TODAY:
Yesterday both the DJIA and S&P 500 hit a wall at my resistant levels, a move which I characterized as a “stretch !!”
However, Institutional buying in the new month combined with a better-than-expected Employment Report have goosed the stock-index futures before the open and will result in the market rising sharply at the open.
As a result, the market will encounter a new resistance level of DJIA 13,346 (S&P:500: 1436). .
FACEBOOK (FB – $21.21): FB is stabilizing above $21.00. Break above $21.55 sets stage for rise to $22.45. FB’s ability to move up is complicated by millions of shares coming on the market that could be sold , shares that were in “lock-up” from its IPO. On Monday 234 million shares became eligible for sale, on Nov. 14,777 million shares become eligible and on Dec. 14 another 156 million shares. Yesterday’s volume was 99 million shares.
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
*Stock Trader’s Almanac: This is a “must own” publication, loaded with daily, weekly, monthly savvy. It is “the source” for strategies, seasonalities, recurring events, useful stats. Published annually, I have used it every year since 1968. Nothing compares !
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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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