Investor’s first read – Brooksie’s edge before the open
Wednesday, March 14, 2012 9:02 a.m. ET
DJIA: 13,177.68 S&P 5400: 1395.
It is beginning to dawn on the Street that this stock market could get a big boost as investors switch out of “safe” havens (treasuries, money markets, CDs, etc.) into stocks where they stand to get a decent return on their investment.
For more than a year, sovereign debt problems and undercapitalized European banks threatened to trigger contagion, forcing investors to invest huge amounts of money in bond funds and safe securities, the latter yielding paltry returns.
Now, with the “perception” that the risk of contagion is over, investors may seek a better return in stocks.
Adding to the “lure” is the fact the stock market is moving up, leaving them with fewer bargains and opportunities.
CONCLUSION: Yesterday was a “breakout” day, where a tug of war between bulls and bears was resolved in favor of the bulls resulting in a sharp surge in stock prices, many exhibiting breakout patterns on the upside.
Today may see slight retracements in those patterns, but then a continuation of the upmove.
There is an outside chance of a buyers’ panic, a sloppy, frenzied rush to buy, first quality stocks, then junk.
That could happen if money suddenly comes out of safe havens and goes into stocks.
Looking at a one-year or two year price chart, an investor may conclude that there is no way they are buying a stock after it has doubled or tripled, yet many will go higher. Some of these stocks are selling at 12 to 15 times trailing earnings and far less vs. 2013 earnings.
It has been three years since this bull market started. For the most part it climbed the proverbial “wall of worry,” except the worries this time around were more intense, especially when you toss the European “thing” into the mix.
The public is not in this market yet, and my guess is a lot of institutional money is not in either.
What I am saying here is there is a chance a positive flow of news will increasingly gain traction much to the amazement of the Street and drive the willingness of sideline sitters to invest and ultimately to speculate aggressively with the bull market eventually reaching a sloppy and ugly top.
What I want readers to accept is the possibility this can happen, just be ready in the event this scenario starts to play out. No time for tunnel vision. But still no time to get careless and violate your tolerance for risk.
TODAY: Support is DJIA 13,110 (S&P 500: 1386).
ECONOMIC REPORTS: The stock market doesn’t always march to the drumbeat of the economy. This time around, the intensity of the economic recovery is critical to a further extension of the bull market that started three years ago. This recovery must continue to gain traction, even accelerate to offset the drag of a slowing international economy if the market is able to move higher.
- Retail Sales (8:30 a.m.) Retail sales advanced 0.4% in January after no gain in December as a result of a slowdown in auto sales.
- Business Inventories (10 a.m.) Rose 0.4% in Dec. below the 0.7% rise in sales pulling down the stock-to sales ratio to 1.26.
- FOMC Meeting (2:15) Rates expected to remain same
- MBA Purchase Applications (7 a.m.) Measures application for mortgages with lenders. Apps jumped 8.4% for the week ended Feb. 24.
- Import/Export Prices (8:30 a.m.) Imports rose 0.03 in Jan., The numbers were goosed by petroleum prices.
- Jobless Claims (8:30 a.m.) Rose for the Mar. 3 week but the overall point is the big trend is down.
- Producer Price Index (830 a.m.) Rebounded 0.1% in Jan. after a like amount decrease in Dec.
- Empire State Manufacturing Survey (8:30 a.m.) This regional survey of business rose sharply in February to 19.53 the best reading in 18 months.
- Philly Fed Survey (10 a.m.) Rose 2.9 points to 10.2 in Feb. reflecting good business activity in the Mid-Atlantic manufacturing area.
- Consumer Prices (8:30a.m.) Rose 0.2% following no change in the prior two months.
- Industrial Production (9:15 a.m.): Was unchanged in Jan. after a 1.0% increase in Dec.Monthly reports have varied. Capacity utilization has trended up six out of the last seven months.
- Consumer Sentiment (9:55 a.m.) has been on the rise since August. It will be interesting to see if rising gasoline prices can reverse sentiments.
Feb. 27 DJIA: 12,981 “Stock Prices: “May the Force Be With You”“
Feb. 28 DJIA: 13,005 “Big Test for Bulls Today“
Feb. 29 DJIA: 12,952 “Opportunities Exist Even in a Lethargic Market“
March 1 DJIA: 12,980 “Bull Market Intact – But Correction Likely in Coming Weeks“
March 2 DJIA: 12,977 “Selective Opportunities – Don’t Get Careless“
March 5 DJIA: 12,962 “Up or Down? Week’s Economic Reports Hold Key“
March 6 DJIA: 12,759 “Technical Correction Underway For Wall Street“
March 7 DJIA: 12,837 “Not Yet! Market Will Probe for a Comfort Level“
March 8 DJIA: 12,907 “Uneasy Market Anticipates Peaking Gas Prices“
March 9 DJIA: 12,922 “Easy Does It! Market is Selective Buying Only“
March 12 DJIA: 12,959 “Bulls Hanging Tough Against Correction”
March 13 DJIA: 13,177 “Threshold of a Big Market Move?“
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.