Market Needs a Flush to Spark Bounce

George Brooks |

Both the Dow and S&P rebounded Friday from support at 12,735 and 1376 respectively, but there is little today to prevent another slide this week below those levels.

There is a chance for a bounce to DJIA 12,896 (S&P 500: 1388), but a big turn now would be premature. The market needs a bigger “flush,” more fear, anxiety, selling, hopelessness. Cool it.

Investor’s first read - an edge before the market opens
DJIA: 12,815.39
S&P 500: 1379.85
Nasdaq Comp.: 2904.87
Russell 2000: 795.02
(Monday, November 12, 2012 (9:17 a.m.)

Do not get discouraged. A series of buying opportunities is shaping up. Expect false starts and spikes down as the market probes for a level that discounts uncertainties and sets up a base for a rebound.

As expected, the press has picked up on the fiscal cliff and won’t let go. Those two words will bedevil readers, viewers and listeners ad nauseam If sleeping was difficult before the election, get ready for another 6 weeks.
The super-hype will roil markets off and on, first with hope that the cliff can be avoided, then with disappointment we are doomed to an endless plunge into a black hole.

From what read in print and that which exists between the lines, the nation will not plunge over the fiscal cliff, triggering automatic spending cuts and tax increases that will undoubtedly result in another recession, i.e. fewer revenues collected by the U.S. government, ergo a greater deficit.

If it happens it will be pre-planned and momentarily, a technicality or tactic, in route to a solution, no damage done.
Both President Obama and House Speaker Boehner want this behind them. Failure is not going to be Boehner’s legacy. Since the election, he has been on the road engaged with numerous media interviews, outlining the republican positions and urging President Obama and the Senate to meet the House on grounds that are acceptable to both parties.
He is selling “a deal” to his party and the American people, though a deal hasn’t yet been detailed. It’s a process.

Obama, wants to move on to other issues, this one has dogged progress for too long and I think he is willing to yield some turf, if the other side does also.
They have had a chance to do this in the past, but political ideology got in the way. The election is over, time to get to work.

That’s how decisions have always been made in D.C., no one has it all their way.
What does all this mean ?
One man’s opinion (me), I see the frame work for a fiscal cliff solution before year-end, with the details to be worked out early next year.
I expect the market react negatively to fears generated by pundits and the press, setting up a very good buying opportunity for those who can look past the fog to stability.
FACEBOOK (FB - $19.21): FB broke support at $21 and is now at risk of a tumble to $18.75 near-term. It can drop lower in face of very emotional selling in the overall market. Originally, I expected a bottom at $16.88, it didn’t get there. Odds favor it will this time with a heavy volume selling climax.
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 34 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. I’ll continue technical coverage for a while to accommodate readers, but think my objective here has been accomplished.
ECONOMY: Most important reports this week
WEDNESDAY:
Producer Price Ix (8:30) Rose 1.1% in September after a a 1.7% jump in August. Core rate (excl food and energy) was unchanged.
Retail Sales (8:30) – rose 1.1% in September after a 1.2% gain in August Excluding auto and gas sales it still rose 0.9%.
Business Inventories (10:00) – rose 0.6% in August vs, a 0.5% sales increase. Inventory sales rate was unchanged at 1.28
THURSDAY:
Consumer Price Ix (8:30) –Rose 0.6% in September the sa,e as in August. Excluding food and energy, it rose 0.1%
Jobless Claims (8:30) – dropped 8,000 to 355,000 for the November 3 week, bringing the 4-week average to 370,500
Empire State Mfg Svy (8:30) – Improved to a minus 6.16 in October from minus 10,41 in August. New Orders improved to minus 8,97 from minus 14,03
Philadelphia Fed Svy (10:00) – Improved to plus 5.7 in October from a minus 1.9 in September
FRIDAY:
Industrial Production (9:15)- Rebounded 0.4% in September after falling 1.4% in August

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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