Investor’s first read - Brooksie’s edge before the open
Monday, August 13, 2012 9:17 a.m.
S&P 500: 1405.87
Nasdaq Comp.: 3020.86
Russell 2000: 801.55
Friday’s correction in the stock market was short-lived, rebounding before it got to my support levels, indicating institutions are buyers on dips in prices.
In tech terms it was a one-day reversal with prices reversing a plunge and closing close to the day’s high. Essentially this indicates the tilt between sellers and buyers favors the latter, though we will need a pick up in volume to move stocks significantly higher.
Today starts off slightly down. What the bulls cannot afford here is for Friday’s upside reversal to be reversed to the downside. That would result in a nasty little correction this week. Again – watch to see if institutions use any weakness to buy.
Presently the euro-meltdown scenario is off the table, though there will be days when commentary out of Europe expresses doubt that the 17-nation currency block is about to become un-blocked.
Bulls have their work cut out for them, faced with uncertainty about just how big the global economic slump can get. Then it’s a question of how well the U.S. economy can resist problems abroad.
The November election is a question mark and the issue of sequestration getting some scary press.
I am not sure what Romney’s choice of Paul Ryan will do for the sequestration issue. Since letting mandatory spending cuts commence beginning January 1, would have dire political consequences, I have been thinking the pols would try to downplay it in coming months. With Ryan on the Republican campaign trail. I suspect the issue will be in our face big-time, and therefore be a negative for stock prices. Don’t know.
I expect institutions to be selective buyers, where else can they put client’s money to work and charge a fee ?
But chasing stocks after a sharp upmove is dangerous in a volatile market. If an investor “must” own something, buying on a pullback is safer.
I have been expecting a big buying opportunity in September/October. So far, I have been wrong, but wrong with my money in my pocket, so to speak.
A sharp correction CAN still occur, though a reduction in the likelihood of a euro etc.-crash takes a huge negatives off the table, and that’s what the Street has been waiting for over a year.
NOTE on “BONDS”: Earlier in the year I said I believed the big story this year would be “The flight from safe to risk assets,” resulting in a major top in the bond market and huge losses in portfolio values as interest rates bumped up and bond prices tanked.
This would come about as investors no longer feel it is necessary to hide out in bonds where they are shielded from a potential meltdown in Europe and buy stocks where the return is expected to be better.
The Fed has promised low interest rates through 2014, but that can change quickly if global economies rebound. Such a rebound could happen if the crash scenario is taken off the table once and for all.
This will happen at some point. SO FAR, I HAVE BEEN WRONG ABOUT THE TIMING. It may not happen this year, but new investing in bond funds is risky. In fact, a holder of bonds or a bond fund should consider selling off a portion of their fund, or worst case sit close to the exit.
Facebook ($21.01 ) The ban on sales by insiders lifts Thursday the 16th as the first of several “lockup” periods end, indicating the potential exists for an increase in selling pressure.( Lock-up period: a period of 90 – 180 days after an IPO during which insiders are forbidden to sell shares).
SO, the big question is, will holders of these locked up shares sell ? With the stock down 43% from its IPO price, maybe not. However, the shares will overhang the market potentially putting a “lid” on the price as it attempts to move up.
Over the next nine months, close to 1.91 billion shares will become eligible for sale vs. 500 million shares trading now.
Clearly, this is a deterrent to buyers, though a buyer “in-size” may want to test the waters. What would be good for the stock would be if one of the major holders like Microsoft (MSFT), which sees itself as a strategic partner as it jousts for position with Google (GOOG), bought more. That would be very positive.
Goldman Sachs, Accel Partners and Microsoft control at least 200 million shares.*
As the worst ever major IPO, FB has lost$38.8 billion in market value since its May 17 offering.
My worst case low for FB is $16.88, however that would have to occur on very heavy volume – 200 million – 260 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 I felt at $34 it was very vulnerable in face of all the misunderstanding and hype.
ECONOMIC REPORTS: Big week for reports. However it is not certain whether the Street is rooting for better-than-expected reports or for dismal ones, which would increase the odds the Fed would step up stimulus.
NFIB Small Business Optimism Index (7:30) – Down 3 points in June to 91.4 in line with general economic weakness.
Producer Price Index (8:30) – Up 0.1% in June after a like drop in May. Core was up 0.2% after a like gain in May. Energy dropped 0.9% in June after a 4.3% drop in May.
Retail Sales (8:30) – Sales were softer than expected in June, including auto. Gasoline sales contributed to June’s drop with a decline of 1.8%
Business Inventories (10:00) – May inventories rose 0.3% outpacing sales which declined 0.1%, bumping the inventory/sales ratio up to 1.27.
Consumer Price Index (8:30) – Unchanged in June after a 0.3% drop in May. Ex food and energy, the CPI rose 0.2% following a like increase in May.
Empire State Mfg Survey (8:30) – Jumped 5 points to 7.39 in July, however new orders were down, suggesting the rise was misleading.
Industrial Production (9:15) – Up 0.4% in June after a drop of 0.2% in May. Capacity Utilization improved to 7.9%
Housing Market Index (10:00) –Surged 6 points to 35, the biggest gain in 10 years. The index reflects the sentiments from a survey by the NAHB regarding the economy and housing market.
Jobless Claims (8:30) – Fell 6,000 in the August 4 week to 361,000 bringing the 4-week average to 368,250, 10,000 less than the month ago trend.
Housing Starts (8:30) – Bounced 6.9% in June after a drop of 4.8% in May. Gains were in both single-family and multi-family homes.
Philadelphia Fed Survey (10:00) – Improved slightly in July, though only a positive blip in a soft environment.
Consumer Sentiment (9:55) – Flat in July
Leading Indicators (10:00) – Down 0.3% in June after a rise of 0.4% in May. This is a composite index of 10 economic indicators.
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”
Aug 7 DJIA 13,117 “Is The Light Green Enough ?”
Aug 8 DJIA 13,168 “Facebook Testing Lows”
Aug 9 DJIA 13,175 “Alert: Congress Seeking Wiggle Room”
Aug 10 DJIA 13,165 Correction to Test BIG Money’s Interest”
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.