Investor’s first read – Brooksie’s edge before the open
Friday, March 2, 2012 9:09 a.m. ET
DJIA: 12,980.30 S&P 500: 1374.09
We should get a bounce in stocks today. News out of Europe is upbeat. European leaders are talking about a turning point in the Greece situation and more rapid payments into the planned 500 billion-euro rescue fund. What’s more, Italy’s battle to reduce its deficit is gaining traction as a result of increased taxes and its austerity efforts.
So why is the stock market not ripping ?
Possibly because a lot of stocks have had a big run and need a breather.
It is a good time for locking in some profits with the intention of buying back at a lower price, or switching to other stocks that stand to have a run of their own.
Here again is where technical analysis is invaluable.
A 5% to 7% correction I see the possibility of would NOT include all stocks. Actually some would do well as others decline – this has become a market of stocks where individual situations outperform the major market averages.
One of the risks of a minor correction of 5% to 7% is that once the correction is ready to yield to a sharp rebound, new negatives suddenly surface to pound prices lower. That’s when the correction becomes a 10% to 12% correction – ouch !
There is no way we know that in advance. The only thing is to have some cash in reserve and sit close to the exits with stocks sporting quick, handsome [undeserved] gains.
So far small corrections go unnoticed, as stocks quickly rebound. It is important that these rebounds be scrutinized closely.
If the market bounces like a golf ball, the bull is still voraciously hungry. If it is comparable to the bounce of a soggy old playground softball (or dead cat), the bull is cooling it.
CONCLUSION: I am still bullish, especially selectively so where a stock has consolidated an upmove and is ready for another upleg. As the “wall of worry” that bull markets are purported to climb crumbles, be increasingly aware of the possibility of a correction.
ECONOMIC REPORTS: As long as U.S. economic indicators signal recovery, these reports are only a minor driver of stock prices. Should they soften, the market will go into a nasty correction.
- Pending Home Sales (10 a.m.) Fell in Dec. after 7.3 pct. gain in Nov. and 10.4 pct. gain in Oct. Year on year sales gained 5.6 pct.
- Durable Goods (8:30 a.m.) rose 3 pct. in Dec. after 4.2 pct rise in Nov..
- S&P Case Shiller Home Price Index (9 a.m.) Dropped 0.7 pct. in Nov. for sixth time.
- Consumer Confidence (10 a.m.) dropped to 61.1 in Jan. from 64.8 in Dec.
- GDP (8:30 a.m.) for Q-4rose 2.8 pct. from Q3’s 1.8 pct., but most of rise was accounted for by an increase in inventories.
- Chicago ISM ( 9:45 a.m.) regional manufacturing dropped 3 points to 60.2, but is well above the “50” threshold for growth.
- Beige Book (2 p.m.) comments follow regarding economic outlook. It is released two weeks before FOMC meets.
- Motor Vehicle Sales (time: ?) Auto sales jumped 13.8 pct in Jan., trucks declined 4 pct. the first time in nine months autos outsold trucks.
- Jobless Claims (8:30 a.m.) Were unchanged for week ending Feb. 18
- Personal Income and Outlays (8:30 a.m.) P.I. increased 0.5 pct in Dec. following a 0.1 pct increase in Nov.
- ISM Manufacturing Index (10 a.m.) Rose one point in Jan. to 54.1 thanks to new orders which were up 2.8 pct.
- Construction Spending (10 a.m.) Jumped 1.5 pct. on top of a November increase of 0.5 pct..Private nonresidential outlays were ahead 3.3 pct..
Feb. 6 DJIA: 12,845 “Follow the Money as It Exits Safe Havens“
Feb. 7 DJIA: 12,878 “Market Held Up By Sneaky Buying“
Feb. 8 DJIA: 12,883 “Is It Safe For Bulls to Come Out and Play?“
Feb. 9 DJIA: 12,890 “BIG Money Buying the Future“
Feb. 10 DJIA: 12,801 “Can a Greek Deal Be Accomplished Over the Weekend?“
Feb. 13 DJIA: 12,874 “Easy Does It! Some Selling Into Good News Expected“
Feb. 14 DJIA: 12,878 “Investors Should Expect “Market Churn”“
Feb. 15 DJIA: 12,780 “Market Churn to Include Brief Correction“
Feb. 16 DJIA: 12,904 “Another Snag in Greek Bailout + Long Weekend = Extended Correction“
Feb. 17 DJIA: 12,949 “Investors Establish Bullish Turf“
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“
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.