Reality Sets In as Uncertainty Starts to Impact Stocks

George Brooks |

The stock market can more readily adjust to bad news than to uncertainty. Clearly the market has had to adjust to both, as it has climbed a wall of worry since early March 2009.

The stock market is becoming more nervous as the November elections approach. While the “fiscal cliff” is not yet a household word, it is among decision makers on Wall Street.

A bipartisan solution may not be reached regardless of who wins in the election. For one President Obama will continue to encounter obstruction by Congress if he is re-elected, and Gov. Romney won’t take office until late January if he wins.
Bottom line: Uncertainty, and the press and spinners will have a field day, especially after November 6.

Investor’s first read - an edge before the market opens
DJIA: 13,473.53
S&P 500: 1441.48
Nasdaq Comp.: 3065.02
Russell 2000: 827.92
(Wednesday, October 10, 2012 (9: 09 a.m.)

As if the economic slump in Europe was not enough to worry about, the IMF has added to investors’ angst with its forecast of an “alarmingly high risk” of an even deeper slump.

The IMF urges the United States to avert the automatic tax/spending cuts that will occur if the fiscal cliff is encountered. Additionally it urges a more integrated monetary union.

Q3 earnings for the S&P 500 companies are projected to drop some 1.7%, after a flat Q2 earnings performance. As a whole, this slippage is probably already discounted, however not so for companies that “surprise up or down.

Revisions by the Street can be expected to accompany the reports.

Bottom line: Uncertainty

CONCLUSION: This is the 7th time since the June low of DJIA 12,035 (S&P 500: 1266 that it has looked like the market would break down. Each was followed by a rally.

Odds favor the consolidation sideways-to-down will continue since stock prices have already had a good run since June 4, up 13% for the broad-based S&P 500 Index.

Both DJIA and S&P 500 broke down through bullish support levels yesterday. While the break was marginal, it is a sign of weakness, sort of a greenstick fracture. New support is DJIA: 13,390 (S&P 500: 1434).

FACEBOOK (FB - $20.22):

FB slipped briefly below $20 late yesterday, then rebounded on increased volume. It is struggling to hold above $19.80 where it attracted buying September 26. A break below that level raises the possibility it will test its IPO low of $17.55 posted on September 4.

I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO because on May 21, I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38.

George Brooks
*Bloomberg.news
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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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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