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Not Yet! Market Will Probe for a Comfort Level

Investor’s first read      - Brooksie’s edge before the openWednesday, March 7, 2012        9:11 a.m. ETDJIA:  12,759.15     S&P 500:   1342.76This is what we are faced

Investor’s first read      – Brooksie’s edge before the open

Wednesday, March 7, 2012        9:11 a.m. ET

DJIA:  12,759.15     S&P 500:   1342.76

This is what we are faced with at this time.

1) Worries about Greece

2) Tension over Iran

3) Oil/gasoline prices

4) Recession/slowdown Europe, Brazil, China

5) Impact of global slowdown on U.S. economy

The first three can go away quickly

Numbers 4 & 5 cannot – It is very difficult to quantify them right now or within several weeks.

This spells uncertainty for which the stock market will seek a “comfort level” where it discounts the potential positives and negatives, which will have a bearing on how much more it declines, as well as how quickly it rebounds.

We are told Greece’s debt restructuring of its bonds WILL happen. The six largest Greek banks plan to accept the  debt swap which significantly reduces the total privately held Greek sovereign debt and averts a default. A successful swap can happen by 3 p.m. N.Y. time Thursday. As I understand it, lenders can be forced to accept the offer if they balk.

Tensions over Iran’s development of nukes stand to lessen as sanctions begin to bite and parties come to the negotiation table.

Since part of higher crude prices is due to manipulation/speculation, angst about high gasoline prices could be short lived, as it has been in the past.

What cannot go away overnight is the uncertainty about global economies. We already know Europe is entering recession. China recently  projected a lower growth rate, and  Brazil has slashed growth expectations for the intermediate-term.  The troubled euro-area countries (Portugal, Italy, Ireland , Greece and Spain ) need growth to avert renewed sovereign debt problems, so worries about that issue could resurface this year.

That leaves the United States, and forthcoming economic reports.  If exceptionally strong, the stock market’s decline could be tempered leading to a rebound in late March.

Yesterday’s decline was partly “technical” after a largely uncorrected run up since October.  It was going to happen, it just needed something to trigger it.

A soft patch in the global economic picture makes sense.

Realistically, it is unrealistic to expect any country to shift into high gear economically in light of the fundamental damage done  to global economies and  country’s fiscal health by the 2007 – 2009 Great Recession and sovereign debt  brinkmanship thereafter.

What’s important is that most nations have survived and are stronger now than in 2008-2009.  Clearly, their leaders are battle tested and have had plenty of time to ponder solutions.

Investors must accept that  it takes time to recover from such a severe economic contraction.

CONCLUSION: I have been looking for a 5%-7% correction for some time. That would take the DJIA down to the 12,350 area (S&P 500: 1300).

That is where I expect it to begin to recover. HOWEVER, that is assuming  no new negatives surface, or that current negatives don’t worsen when the market hits that juncture. If they do, a rebound will have to begin from a lower level. That’s what turns a moderate correction into a nasty one.

TODAY: Look for a rally with resistance starting at DJIA  12, 830 (S&P 500: 1351).

That rally will be followed by another down leg to the DJIA 12,600 (S&P 500: 1325) area. Currently this correction is headed for the DJIA 12,300 – 12,400 (S&P 500: 1295 – 1302) area where it will attempt to stabilize.

What can change the picture ?

Very strong U.S. economic numbers.



  • Factory Orders (10 a.m.) –  Thanks to strong Durable Goods’ orders December was up a solid 1.1% after a big 2.2% jump in Nov..
  • ISM Non-Manufacturing  Index (10 a.m.) – January was strong, as was December. A very comprehensive index.


  • ISC Goldman Store Sales (7:45 a.m.)Covers major retail chains, but limited to 10% of total retail sales.


  • MBA Purchase Allowances  (7 a.m.)Measures purchase applications at mortgage lenders. Provides gauge of housing demand – a key to giving current economic recovery a boost.
  • ADP Employment Report (8:15 a.m.):This will be scrutinized carefully for a clue to what  Friday’s Employment Situation report produces.  Very Important.
  • Productivity and Costs ( 8:30 a.m.) Hours worked generally increases before new hires
  • EIA Petroleum Status Report (10:30 a.m.):Weekly report of inventories here and abroad, with some bearing on prices for petroleum prices.
  • Consumer Credit (3 p.m.)Rose $19.3 billion in December following November’s  $20.4 billion gain. Both months saw sizable gains in credit card usage.


  • Jobless Claims (8:30 a.m.)Was down 2,000 for the week ended Feb, 25, Four-week moving average is now 354,000


  • Employment Situation (8:30) Was up a solid 243,000 in January, 203,000 in December and 157,000 in November. The unemployment rate dropped tro 8.3% from 8.5%.  Average workweek was steady at 34.5 hours.
  • International Trade (8:30 a.m.)The trade gap worsened in December as imports jumped. The nonpetroleum goods deficit increased to $36.5 billion from $34.1 billion, while petroleum products slipped to $26.9 billion from $27.6 billion.
  • Wholesale Trade (10 a.m)Measures the dollar value of sales made and inventories held by merchant wholesalers. It rose  1.0% in December.  The stock-to-sales ratio is considered “very lean and efficient.”

Recent Posts:

Feb. 21   DJIA: 12,965  “The Market’s Stall is Deceptive While Selected Issuers Could Hum
Feb. 22   DJIA: 12,938  “Rotation of Strength: Continuing Opportunities as Market Averages Remain Sluggish
Feb. 23   DJIA: 12,984  “Market Stall Masks Opportunities
Feb. 24   DJIA: 12,982  “Speculators Hyping $4 Gasoline by Summer
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

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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