Investor’s first read – Brooksie’s edge before the open
Friday, June 29, 2012 9:06 a.m. ET
DJIA: 12,602.26
S&P 500: 1329.04
Nasdaq Comp.: 2849.49
Russell 2000: 775.89
Buying a big open can result in an investor paying the high price for the day, and maybe for days thereafter. Best to wait for prices to settle back during the day.
Investors have craved news that would clarify the exhausting uncertainties overhanging the stock market. They are well-known to anyone who is paying attention – Europe’s debt woes, the Supreme Court’s ruling on Obamacare, the U.S. economy, global economies, and the fiscal cliff we will start worrying about in coming months.
(What happened to $5 a gal. gas ? Iran’s nukes ?)
If you think the uncertainty prior to the high Court’s decision was bad, here comes the dirtiest street fight of the year, as opponents scramble to undo it.
The market is up prior to the open due to news out of the European summit that a token amount of stimulus will be allowed and Spain and Italy will be cut some slack for their debt/rising interest rate dilemma, in spite of Germany’s opposition.
Without the EU’s mightiest economic power, I doubt the rest of the EU can forge anything permanent, ergo a return to “uncertainty.”
But the market is telling us enough muscle of 16 Euro-area countries is pressing Germany for a compromise and maybe this goes somewhere.
Take contagion off the table and a lot of uncertainty is taken out of the equation, enabling stock prices to stabilize. This is what is desperately needed. The BIG question is, is what is happening at the Brussel’s summit leading to that assurance ?
The school will remain out for the summer in terms of U.S. and global economies, so I seriously doubt this is the last train out of the station.
Oh, and the fiscal cliff – the January 1st deadline when automatic spending cuts in excess of $1.2 trillion go into effect and the Bush-era tax cuts are extended, modified or not extended.
Congress was deadlocked on this issue late last year. Since then, Reps and Dems have become even more polarized.
TODAY: Look for “gap”open with the DJIA opening above 12,795 (S&P 500: 1350). This looks 90% European summit.
The Chicago PMI (regional business) Report comes at 9:45 and Consumer Sentiment at 10a.m.. It is remotely possible they would be upbeat, I still don’t think that is what this strong open is all about.
The DJIA needs to hold above 12,450 and S&P 500 above 1310 for any kind of sustainable upmove to occur. That I think will happen but IMHO not for 3 months and from lower prices.
Facebook (FB): Without a huge endorsement at this point, FB is destined to bump along sideways. While we may see a bounce to $32.25, the more likely trend will be sideways to down. At this point, traders who bought it in the mid-to-high 20s will sell and short-sellers will delay covering purchases.
The result ? One of those grinders between $28.5 and $31.80 going forward. Imagine if you bought FB on the underwriting and now that the 40-day quiet period is up, its underwriter has little to say about it. They thought it was a deal at $38, but none projects a higher price in the foreseeable future. Who is going to get you out of this mess ? Time, probably.
FB qualifies for the dead-cat bounce test. If its up-days have spring like a golf ball, it is a positive sign that higher prices are in the offing. If up-days rebound like a dead dropped from a height (or soggy old playground softball), expect lower prices.
I don’t own, nor have I ever owned FB.
ECONOMIC INDICATORS: The Street is watching the economy for enough signs of weakness to prompt measures by the Fed to stimulate the economy. (bad is good !). Interest rates can’t get much lower. People on fixed incomes are without income on savings, insurance companies are forced to jump premiums because their treasuries yield next to nothing. Generally, they make their money on investments not insurance risk.
MONDAY:
Chicago Fed Activity Index (8:30): Dipped into negative territory to a minus 0.45 in May vs. a plus 0.08 in April. The Index encompasses 85 economic indicators drawn from production and income, sales, employment/unemployment, hours, consumption, housing, orders and inventories.
New Home Sales (10:00): Surged 7.6% in May to 369,000 units at an annual rate well above estimates that ran a 346,000 rate., Residential construction is expected to contribute positively to GDP this year for the first time since 2005. Sales advanced 3.3% in April after a 7.3% drop in March and 5.6% rise in February.
Dallas Fed Manufacturing Index (10:30): Increased 5.5 points to 15.5 in June, the strongest reading in 15 months, however the index of future business activity declined to 1.3 from 4.3. he survey covered 91 Texas manufacturers.
TUESDAY:
S&P Case-Shiller Home Price Index (9:00): April home values rose 1.3%, the first increase in seven months. Home prices increased in 19 of 20 major cities One reason for the firming of prices is the low inventory of previously occupied homes for sale which is down to 2006 levels.
Consumer Confidence (10:00): dropped in June, the fourth straight monthly decline. The Index declined to 62 from 64.4 in May. Its worst reading was 25.3 in February 2009 !
Richmond Fed Mfg Index (10:00): Dropped 7 points in June to 3 in May, slightly more than projected. However, “expectations” were generally more optimistic.
WEDNESDAY:
Durable Goods (8:30): Posted a bigger gain in May than projected with a rise of 1.1% vs. a decline of 0.2% in April. Ex transportation, May gained 0.4%.
Pending Home Sales Index(10:00): Jumped sharply 5.9% in May boosting the Index to 101.1 vs. 95.5 in April, the highest reading since April 2010 when the home-buying tax credit expired. The Index is now 13.3% higher than a year ago.
THURSDAY:
GDP (8:30): Second estimate. Real GDP grew at a 1.9% annual rate vs an initial estimate of plus 2.2%. Q4 was plus 3.0% annualized.
Jobless Claims (8:30): were down 6,000 to 386.000 for the week ended June23 vs. revised 386,000. The 4-week moving average was down 750 claims to 386,750.
Kansas City Fed Mfg Index (11:00): slid to 12 in June from 17 in mirroring slowdown experienced throughout the rest of the United Satates
FRIDAY:
Personal Income (8:30):
Chicago PMI (9:45):
Consumer Sentiment (9:55):
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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