Overhead Supply Will Stop Rally - Raise Cash - Mini Crash Possible

George Brooks |

Overhead Supply Will Stop Rally - Raise Cash - Mini Crash PossibleInvestor’s first read      - Brooksie’s edge before the open

Friday, May 18, 2012        4:15 a.m. ET

DJIA:  12,442.49

S&P 500:   1304.86

Nasdaq Comp.: 2813.69

Russell 2000:  754.33

A rush for the door seems driven by fear that Greece, perhaps Spain, are destined for exiting the euro. Worse yet, the U.S. economic indicators are weakening more than expected. Global recession starting to get ugly.

A drop in the May Philly Fed (regional business) survey Index to 5.8 from 8.5 and a 0.1% drop in the leading indicators contributed to fears that the U.S. economy may also be on the ropes.

Yesterday I said the Market would find support at DJIA 12,275 (S&P 500: 1292), rebound to DJIA: 12,610 (S&P 500:1333), then  enter a second leg down to DJIA 11,915 (S&P 500: 1255). We could hit those support targets today or Monday.

There is a chance the rally would be smaller and second leg greater, depending on the news that hits it when it is declining.

I suspect, most traders will not want to be “long” over the weekend, though they may do some buying if the market gets hammered today.

We are faced with an ugly situation. Even if the Greek crisis is taken off the table temporarily, there is still in the uncertainty of the U.S. economy and of course the divisive politics of  an election year.

This won’t go away quickly. PROTECT yourself just in case ugly news gets much uglier. A rally here would give the impression things are getting better, i.e. “no sweat.”

Don’t buy it !

ECONOMIC REPORTS

If reports this week show a marked weakening, the market will take a hit. Otherwise it has a chance to stabilize as investors await more clarification.

TUESDAY

Consumer Price Index (8:30) –  Unchanged in April. March was plus 0.3% vs. 0.4% in February.

Retail Sales (8:30) – Up 0.1% in April vs. a gain of 0.7% in March after a gain of only 0.1% in January.

Empire State Manufacturing Index (8:30)The Index jumped to 17.1 from 6.56 in March.

Business Inventories (10:00) – Up 0.6% in February against a 0.8% increase in sales resulting in an inventory/sales ratio of 1.28

Housing Market Index (10:00) -  Down 3 points in April after 7 straight gains. The Index is comprised of a survey  covering present sales of new houses, sale of new houses expected over next 6 months, and traffic of prospective buyers in new houses.

WEDNESDAY

Housing Starts (8:30) – dropped 5.8% in March after a drop of 2.8% in February, both multifamily and single-family houses were down.

Industrial Production (9:15) -  Unchanged in March from February. Capacity Utilization down a smidge to 78.6%.

THURSDAY

Jobless Claims (8:30) -  Claims were unchanged at 370,000 for the week ended May 12 The 4-week moving average  was down 4,750 to 375,000.

Philly Fed Survey (10:00) – The Index was  5.8 in May, down from 8.5 in April, the first decline in 8 months.

Leading Indicators (10:00) –  declined 0.1% in April. The decline was due to a drop in apartment building permits and a spike in unemployment claims.

George  Brooks

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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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