Investor’s first read – Brooksie’s edge before the open
Tuesday, June 5, 2012 9:08 a.m. ET
DJIA: 12,161.46
S&P 500: 1278.18
Nasdaq Comp.: 2760.01
Russell 2000: 737.24
Last Wednesday, I warned, “Beware of Calming Announcements,” admittedly a kind of weird headline, but designed to give readers pause to ponder, “What’s this guy saying here ?”
To recap briefly, I alerted readers to expect announcements out of Europe intended to buy time and head off the kind of panic that sets off a sequential tumbling of dominos, roiling the fiscal and economic stability of other euro-area’s countries and beyond.
I believe European leaders will dig in their cleats and hold the line here on preserving the euro, but with a change of faces and policies. Unfortunately, it’s 4th and long yardage, and time is not on their side.
Expect a number of false starts, triggered by announcements of implied solutions to Europe’s woes, with a real solution arrived at in the fall when it’s now or never.
What does this mean for investors ?
False rallies that suck investors back in off the sidelines only to see the market cruelly reverse to the downside again. A final solution will take time, even at this critical stage.
That’s Europe. Here in the United States we have the question (once again) of whether the present softness in the economy is temporary, or is signaling the beginning of a recession.
The answer to that one will also take time, but, starting this week, look for the Fed to attempt stabilize the market, even prompt a rally with commentary for Chair Bernanke on Thursday and other Fed officials throughout the week. They have a lot of skin in this game, it’s been their recovery and they are not going to get picked off second base at this stage.
Nimble, gutsy, traders can play this action. Institutions can pick away at stocks that got whacked in recent weeks knowing that they will probably be able to “average” their “cost” down before now and October, but what little public is still in this game, trying to play it is tantamount to swimming across a pond stocked with piranhas.
CONCLUSION: I expect a rally to develop this week, most likely after a drop in the DJIA below 12,000 to around 11,915 (S&P 500: 1255). Investors wanting to play are advised to sit close to the exit, ready to bail if (as I expect) the market turns against them.
Minor resistance starts at DJIA 12,151 (S&P 500: 1282). More formidable resistance starts at DJIA 12,298 ( S&P 500: 1297)
Facebook: I am still looking for 24 – 26 with a possibility of a brief plunge below 20. The stock cannot take one more negative report from the Street, which would be welcomed by players who are short and those looking to pick up some cheap stock !!!
ECONOMIC REPORTS: Stock prices have accelerated their decline in face of increasingly dour reports on the U.S. economy. Is this just another summer slump ? Will this trigger QE3 by the Fed. ? What’s important about this week’s line up of reports is a lot of Federal Reserve brass is out there addressing the issues – hmmmm.
Monday:
Factory Orders (10p.m.) Booking orders dropped 0.6% in April after a revised decline of 2.1% in March.
Tuesday:
ISM Non-Manufacturing Rept (10p.m.) The ISM Index dropped sharply in April to 53.5 from 56.0Both New Orders and business activity were soft reversing a surge that started in January and February then trailed off.
Wednesday:
Productivity and Costs (8:30) Q1 business productivity slipped at an annual rate of 0.5% after 1 1.2% rise in the prior quarter. Hours worked increased at an annual rate of 3.2% vs. 2.4% in the prior quarter, however compensation slowed to 1.5% from 3.9% in Q4.
Beige Book (2p.m.) Produced two weeks ahead of Federal Open Market Committee meetings (FOMC), the book reports on the economic conditions in each of the 12 Federal Reserve districts. It CAN offer clues to future Fed policy changes.
Thursday:
Jobless Claims (8:30) Claims increased 10,000 in the May 26 week to 383,000 bringing the 4-week average to 374,500. Claims have been sliding down for well over 18 months.
Bloomberg Consumer Comfort Index (9:45) This Index results from a weekly survey of American views of the economy, their personal finances and buying intentions.
Friday:
International Trade (8:30) The trade gap widened to $51.8 billion in March from $45.4 Billion in February. Exports rose 2.9% after a 0.3% increase in February. The deficit in non-petroleum goods was a major contributor.
Wholesale Trade (10p.m.)Wholesale inventories rose 0.3% in March with sales up 0.5%, the inventory/sales ratio remained unchanged at 1.17.
George Brooks
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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.
