Markets Probing for Support Amid Uncertainty

George Brooks |

Markets Probing for Support Amid UncertaintyInvestor’s first read      - Brooksie’s edge before the open

Tuesday, May 8, 2012        9:15 a.m. ET

DJIA: 13,008.53

S&P 500:   1369.58

Nasdaq Comp.: 2957.76

Russell 2000: 793.81

Not bad for  unsettling news, though Friday’s “hit”  helped discount prices ahead of  the news about elections in France and Greece  that increased the possibility that the euro –area membership will see one or more countries exit with the survival of the euro itself at stake.

The survival of the euro and risk of contagion  raised Hell with stock prices last year , but  I don’t see that sensitivity yet,  suggesting the European leaders are better prepared for a crisis this time around.

One reason would be, there is a mounting sentiment that the United States  is not as vulnerable now to  a European recession or shakeup in the EU.

CONCLUSION:  Volume was light so I expect some more probing  lower. Yes, our banks and corporations are liquid and making money, but  investors are confronted with more UNCERTAINTY now than they were last week.  Uncertainty triggers selling and keeps buyers on the sidelines.

There are mixed feelings in the financial community about the elections in France and Greece.  The latter is scrambling to form a government ahead of a possible default within a month as its next government must decide to make today’s next interest payment on $250 million of 4.5% notes maturing in 2016 and decide whether to pay the 436 million euros due on a floating-rate note.

Weakness in bank stocks  followed a jump of 1.5 basis points to 277 by the Markit iTraxx SovX Western Europe Index of credit default swaps on 15 governments signaling a deterioration in credit quality expectations.*

TODAY: The  “European thing” is back striking sentiments that fall somewhere between outright fear and puzzling uncertainty. The “what if” questions about Europe’s economies defy accurate conclusions about what to do, where to put money, how much and how to protect capital.

The  “We’re in it for the long haul” investors can buy selectively, hoping they will see  a net gain within a year.  Traders can look for better prices, hopefully a sharp climactic, air clearing  plunge that sets up an equally sharp rebound.

So, does anyone buy now ?

Depends on the stock, but  yes.  Rather than go all-in,  a better strategy would be to take a partial position planning to add to the position if it goes down, thus striking a lower average cost basis. If it runs up, the investor can buy more since his average cost is reduced by the earlier buy, or just let his gains rub.

One overlooked positive is the fact the price of oil dropped for the fifth straight day as Saudi Arabia’s Oil Minister Ali al-Naimi said prices were still too high. U.S. crude supplies were estimated to be at the highest level since September1990.

We didn’t quite drop to the support levels I noted yesterday (DJIA: 12,940 and S&P 500; 1356).  We will today with a further drop to DJIA  12,875 (S&P 500: 1354) possible.

ECONOMIC REPORTS: Now that investors are questioning the sustainability  of the economic recovery which started in June 2009, these reports are watched closely.  Unfortunately, answers to this question won’t be forthcoming this week, the schedule of reports is light.


Consumer Credit (3:00) –  Rose $21.4 billion in March, driven mostly by purchases of autos and funding of educational costs.   Revolving debt  which includes credit card debt increased $5.2 billion.  The big jump in March follows an  $8.7 billion increase in  February following  a revised $18.6 billion rise in January.  A big jump in non-revolving credit for automobile purchases has driven a big seven month surge,


Wholesale Trade (10 a.m.) – wholesale inventories rose 0.9% in February, sales rose even more (1.2%), however the stock to sales ration remained unchanged.


International Trade (8:30 a.m.) The U.S. International Trade gap narrowed sharply in February to $46.0 billion from $52.5 billion. Both petroleum and non-petroleum goods  contributed to the decrease.

Jobless Claims (8:30) – declined a healthy 27,000 in the April 28 week to 365,000.

Import/Export Prices (8:30) – Rose 1.3% in March as imported petroleum prices surged 3.0%.The rise in petroleum prices spilled over to industrial supplies.


Producer Price Index(8:30) – Unchanged in March after a big 0.4% rise in February. Core PPI gained 0.3%, following a gain of 0.2% in February. Energy decreased 1.0% after a 1.3% jump in February, however gasoline dropped 2.0% after a 4.3% jump in


Consumer Sentiment Index (9:55 a.m.) –The Index increased to 76.4 in April from 76.4 in March.

George  Brooks



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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