Investor’s first read – Brooksie’s edge before the open
Tuesday, August 7, 2012 9:18 a.m.
S&P 500: 1394.23
Nasdaq Comp.: 2989.91
Russell 2000: 794.35
Yesterday’s headlined “Sequestration” as the headline grabber. What a field day the press can have with this one. It doesn’t get any better than the prospect of huge automatic spending cuts and higher taxes to stir paranoia among November’s voters. The press, and pols, will make the most of it as long as they can.
However, investors must be aware that there is a move underway in Congress to DELAY AUTOMATIC SPENDING CUTS until March 2013, and as I noted yesterday, Congress has wiggle room on these issues, meaning as an impact issue, sequestration may not have legs.
Last week, Congress voted to raise the nation’s borrowing limit by $2.1 trillion, thus averting a default on certain obligations.
EUROPE: The Street is betting the 17 Euro-area countries can finally get on the same page in terms of fiscal policy and sacrifices many will have to make to correct sovereign debt problems.
While rhetoric will have to prove reassuring in coming weeks, since the euro-area financial chiefs are not scheduled to meet until September 3rd, the ECB’s governing council until the 6th.
This is a light news week for economic reports, leaving Page One for the politicians (ugh).
CONCLUSION: At this point, it is up to the BIG money and institutions to decide if they believe Europe can successfully implement measures to address its sovereign debt woes. We know their intent, now it is a question whether they can deliver.
We know the Fed will step in to help a sagging economy. That is their intent, but there is a question whether they can actually help if the economy goes into a tailspin.
If the BIG money sees daylight, it will BUY aggressively and that will show up in the upside volume.
Assurance that we won’t crash is really what they are looking for.
Facebook (FB:21.14): FB rallied in sympathy with LindedIn’s (LNKD) good earnings report and will press upward today, probably a combo of short covering and traders looking for a technical bump to the $23.75 – $24.25 area. FB isn’t comparable to LNKD at this time, since LNKD doesn’t carry the baggage FB has, namely a bungled IPO that created a lot of disappointed investors and doubts about the company’s ability to generate revenue and earnings growth.
I think FB will test last week’s lows of $19.82 this week or next. I still see a worst case of $16.88, or so, but most likely it would take general softness in the overall market to generate the kind of frustration that would be needed to create enough fear to prompt a selling climax. 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 I felt at $34 it was very vulnerable in face of all the misunderstanding and hype.
Consumer Credit (3:00p.m.):Rose sharply $17.1 bn in May with student loans a big contributor to to non-revolving loans.
Productivity and Costs (8:30a.m.): Business productivity declined 0.9% in Q1, revised upward from a gain of 0.5% vs. a gain of 1.2% in Q4, 2011.
Jobless Claims (8:30): Rose 8,000 claims in the July 28 to 365,000 bringing the 4-week average to 265,500.
U.S. International Trade Gap (8:30a.m.): Narrowed in May due to lower oil prices. The trade deficit narrowed to $48.7bn from $50.6bn in April.
Wholesale Inventories (10:00a.m.): Rose 0.3% in May bringing the inventory/sales ratio up a smidge to 1.18 from April’s 1.17.
Import/Export Prices (8:30a.m.): Import prices dropped sharply in June by 2.7% following a downwardly revised decline of 1.2% in May. Export prices declined 1.7% in the period.
July 5 DJIA 12,943 “Difficult Summer Ahead for Stocks”
July 6 DJIA 12,896 “Don’t Get Too Bearish ! Look for a Sept./Oct. Bottom”
July 9 DJIA 12,772 “Now for Q2 Earnings Reports !”
July 10 DJIA 12,736 “Earnings Surprises to Favor Bulls”
July 11 DJIA 12,653 “Stocks Not Celebrating European Accord –Raise Some
July 12 DJIA 12,609 “June 4 Rebound “Must” Hold or Else !”
July 25 DJIA 12,617 “June 4 Lows at Risk”
July 26 DJIA 12,676 “Don’t Buy the Open”
July 27 DJIA 12,887 “Facebook Selling Climax Monday ?”
July 30 DJIA 13,075 “Market Betting the Fed Will Act”
July 31 DJIA 13,073 “Face-off: Negatives and Uncertainties vs. Positives”
Aug. 1 DJIA 13,008 “Fed Action Hoped For”
Aug 2 DJIA 12,976 “Recovery Sucking Wind, Not Tanking”
Aug 3 DJIA 12,976 “What This Market Needs”
Aug 6 DJIA 13,092 “NEXT ! Sequestration”
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.