HIGHLIGHTS TODAY: Big investment picture, fiscal cliff, stock market correction, presidential election, Unemployment rate, leading indicators, housing, jobs, euro-discord, economy, recession, corporate earnings, Google, Facebook
Both the DJIA and S&P 500 wasted no time dropping to and closing within a hair of my support levels at DJIA 13090 and S&P 500: 1410.
WHY DID THE MARKET DROP ?
Q3 earnings ? While earnings were expected to be soft in Q3, I think the tech sector rattled some cages in quant-city.
Europe ? Both the service and manufacturing sectors are slowing more than expected. Then too, Germany seems to be cooling to solutions for the euro-area’s sovereign debt woes.
Fiscal cliff ? If not addressed by Congress before December 31, the damage done by automatic spending cuts (sequestration) and the expiration of the Bush-era tax cuts is unthinkable. Worries about this have crimped consumer and corporate spending most of the year. Congress is not expected to address the issue until after the elections, but with holidays in November nad December, that leaves little time for decisions. The “press” is preoccupied with the campaign now, but will be all over this one after November 6.
Winner on November 6 ? Was there a political message here ? Governor Romney has closed the gap, but President Obama won the last two debates.
Investor’s first read - an edge before the market opens
S&P 500: 1413.11
Nasdaq Comp.: 2990.46
Russell 2000: 816.20
(Wednesday, October 24, 2012 (9:09 a.m.)
Granted, you don’t have to look far on Wall Street for detractors of the president, but if he is poison for stocks why has the stock market advanced 64% since he took office. Granted, some of the bounce-back is due to the fact the market was down 55% over the preceding 15 months before he took over. It had to rebound.
But, wait a minute. Markets like incumbents to win, and get upset when they lose, since it introduces change which spells uncertainty which markets hate.
Since WWII, there were no major losses in October when incumbent parties retained the White House.* The DJIA closed at 13,437 on September 28 and is now 13,102 with 6 trading days left in this month. Is the market forecasting a Romney victory, or is it just reflecting a photo finish, and needs a few more days to decide.
DID THE MARKET WARN US OF A PLUNGE ?
The market signaled caution on Tuesday October 9 with a break through support which I referred to the next day as “sort of a green stick fracture.” Wednesday, October 10’s support levels also broke down, which I referred to as a “full greenstick fracture,” leading to my conclusion that we may be faced with a more prolonged correction down, or sideways-to-down trend in the market,. That was further confirmed by last Thursday’s stall, which prompted me to warn “Easy Does
It,” prior to a 200-point drop Friday. Of course, the DJIA dropped 243 points yesterday.
What’s my point ?
These signs are readable using technical analysis, it is a valuable tool. Anyone tells you it isn’t simply doesn’t know how to use it !
Expect money managers to make forays into the market on corrections. This will prompt rallies, some of which will be head-fakes, only to result in another leg down and losses for those who jumped in prematurely.
We now have formidable overhead supply (investors ready to sell “if” the market recovers to recent highs. When you find yourself thinking, “damn, if the market rebounds back up to where it fell out of bed, I am going to unload stocks,” that’s your subconscious telling you it isn’t going to do it.
TODAY: Resistance starts at DJIA 13,172 (S&P 500: 1420). Too early to buy.
FACEBOOK (FB - $19.50): (UP $5 in pre-market trading)
Today: FB is up $5 in pre-market trading in response to a much better-than-expected earnings report after the close yesterday. Revenues were up 32% over the quarter a year ago . Non-GAAP earnings were $0.12 a share, after adjustments, GAAP earnings were down $0.02 a share.
There is no way to know how much stock will be sold when it comes out of lock-up. Maybe the sellers will agree to limit sales at this level, maybe institutional buyers will come in to pick up a large block that comes on the market, the advantage being their large purchase wouldn’t move the stock.
Based on the frantic buying today, I suspect shorts are scrambling to cover positions. Some buyers carelessly placed orders to buy without a limit price. Buying after a 25% jump is risky, especially with the potential for a large amount of stock coming on the market in coming months, and at $23 - $25, it is more likely to come on the market than at $19 a share.
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.
*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 !
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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