Should Europe and China Slowdown Cause Investors Worry?

George Brooks |

Hong Kong and China stocksInvestor’s first read      - Brooksie’s edge before the open

Thursday, March 22, 2012        9:02 a.m. ET

DJIA: 13,124.62

S&P 500:  1402.89

We have known for months that there would be an economic slowdown in Europe and China, and the stock market  seemed O.K. with that as long as the U.S. economy was bringing good numbers.

Now we have worries about just how much of a slowdown there will be as the slowdown begins to take hold.

A euro-area composite of purchasing managers for February dipped to 48.7 from 49.3, a Chinese manufacturing index indicated a contraction greater than forecast.

Let’s not forget that it was weeks ago the greatest euro-fear was “meltdown,” that at the time everyone would gladly trade  avoiding a meltdown for slow growth, even a moderate recession. If I’m not mistaken, China’s biggest concern was fast growth.

On the home front the news has been good, not great, but encouraging.  Today’s Jobless Claims for the March 17 week came  in at a decrease of 5,000  to 348,000, bringing the 4-week moving average down to 355,000 well below the 400,000 the doomsters barked must be beaten or the recovery was dead.

At 10 o’clock, the FHFA House Price Index and Leading “Economic” Indicators will be reported.

TODAY:  With concern now shifting from not whether there will be slowdowns in Europe and China, but  to how great a slowdown these countries will experience, the market will have to  find a comfort level that discounts these uncertainties.

Currently, I see DJIA 13,020 (S&P 500: 1377) providing support for the market.

This is one of those cases where we stand to get a better read of the market’s strength by monitoring its weakness.  If the bears can’t move the ball, the bulls will charge in  and run the table. Watch for a one-day, or two-day reversal Friday or Monday.

A one-day reversal features the market regaining all of its loss in one day, a two-day reversal is when the market closes at its low for the day, but recoups all of that loss the next day and closes at its high.  Both feature heavy volume as you would expect when you have a change in leadership where the bulls step in to buy all the bears have to sell, then buy aggressively taking advantage of lower prices and the knowledge that they now have the upper hand.

ECONOMIC REPORTS:

MONDAY (10 a.m.):  Housing Market Index:  The National Association of Home Builders/Well Fargo Housing Market Index (HMI) held in March at its highest level in four years following five consecutive months of gains.

TUESDAY (8:30 a.m.) February  Housing Starts held to an annual rate of 698,000 a smidge below industry projections.  This compares with a rate of 609,000 a year ago. At its peak in 2005, the annual rate of starts was 2.07 million, leaving plenty of room for further increase.

WEDNESDAY  (10 a.m.) Existing Home Sales – February held its ground near a two-year high, dropping 0.9% to an annual rate of 4.59 million.  Tanuary and February mark the strongest start since 2007. Nevertheless, the numbe of existing homes on the market increased by 100,000 to 2.43 million, which at the cureent pace would take 6.4 months to sell, up from 6 months in January. The median price of an existing home is now $156,100.

THURSDAY

( 8:30) Jobless Claims –Decline for the week ending March 10. The 4-week average remains at 355,750.

(10 a.m.) FHFA House Price Index – improved slightly in December with a 0.7 increase, the same as in November. Versus a year ago, the Index is down 2.5%

(10: a.m.) Leading Indicators –January’s index  was up a strong 0.4%

FRIDAY (10 .a.m.)   New Home Sales – declined 0.9% in January after a sharp increase in December. The median house price edged up to $217,100 in January.

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.

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

Companies

Symbol Name Price Change % Volume
PFU.UN:CA Investment Grade Managed Duration Income Fund 9.49 0.02 0.21 3,000

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