Investor’s first read - Brooksie’s edge before the open
Monday, August 20, 2012 9:09 a.m.
S&P 500: 1418.16
Nasdaq Comp.: 3076.59
Russell 2000: 819.89
So far, we have a stable investment environment here and abroad. The economy is stable enough to put off Fed action. While that disappoints some investors, would it really be good for the economy to be so bad the Fed had to step in ?
The European scene is stable with all key countries on the same page insofar as preserving the euro. French and German leaders meet on Thursday to iron out details on addressing the euro-area’s sovereign debt woes and Greek Prime Minister Antonis Samaris will travel to Germany and France on Saturday. The Greece issue is still a sticky one and could raise some new concerns.
The broad-based S&P 500 is up 12.5% since June 4, and within a whisker of the April 12, intraday high of 1422.
Institutional money managers have been faced with a dilemma off and on for well over a year. They have client’s cash to invest, yet have been faced with the potential of a meltdown in Europe and consequently a fall-out in global stock markets/ economies.
Now those concerns are off the table (but still in the room), and they can ramp up their buying and that is what we have been seeing recently.
IF WE ARE BEGINNING TO SEE A BRIGHTER GREEN LIGHT AT THE END OF A SHORTENED TUNNEL, INTEREST RATES WILL BEGIN TO RISE EVER SO SLIGHTLY, SIGNALLING THE END OF THE BOND BULL MARKET WHERE THE VALUE OF LONG-TERM BOND FUNDS DROPS FAR MORE THAN THE INTEREST RECEIVED.
Facebook ($19.05) Down 48% from its ridiculous May IPO price of $38 a share, FB is now becoming attractive to long-term buyers looking out 3 to 5 years, as well as to traders who sold short at much higher prices and are eager to lock in some profits.
The big question now is, at what level is the buying great enough to stop its freefall and turn it back up ?
With FB’s Aug.1 close at $21.50, I picked $16.88 as my worst case low, based purely on technical analysis since other attempts at valuation are all over the map and it’s stock is at the mercy of the imbalance of sellers over buyers.
It’s a judgment call, based on experience.
If big buyers with an eye to FB’s potential to leverage its sub base at some point in the future decide they are NOT going to dicker for a point or two lower, FB could rebound at any point. Such buyers would want to capitalize on the increased selling now generated from the potential sale of 271 million shares after the IPO lockup period expired last week. If they wait until that selling dries up, their buying will move the stock up, raising their “cost.”
Friday, I said, a”no-show” by BIG buyers opens the door for another plunge, which I saw getting down to $16.88 before rebounding. That could happen this week, I said, possibly as early as today in the first 20 minutes of trading.
I do not see enough weakness in pre-market trading to indicate a climactic sell off at the open. It may rally at the open. If the rally is on thunderous volume, the BIG money is buying and the lows most likely seen. Otherwise, the rally will fail and new lows to follow.
This should be the week FB hits its low.
ECONOMIC REPORTS: Light week for economic indicators.
Chicago Fed National Activity Index (8:30): An index of 85 “national macroeconomic indicators released monthly.
Existing Home Sales (8:30): Dropped 5.4% in June to an annual rate of 4.37 million homes. Sports a year over year gain of 7.9% with the median price of a hous now $189,400.
Jobless Claims (8:30): Up 2,000 for the Aug. 11 week to 366,000 bringing the 4-week average down 5,500 to 363,750.
PMI Manufacturing Index (9:00): Index was 51.4 in July down from 52.9 in June. New Orders were 51.0 vs, 51.9.
New Home Sales (10:00): Dropped 8.4% in June after a gain of 6.7% in May and 1.7% in April.
FHFA House Price Index (10:00): Increased 0.8% after a 0.7% increase in April. Year over year gain is 3.7%. in May.
Durable Goods ( 8:30): Increased 1.3% in June after a 1.5% increase in May. Both defense and nondefense aircraft orders rose, motor vehicle sales declined. Ex-transportation orders dropped 1.4%
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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