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Speculative Fever Festering

There must be a monstrous amount of cash out there that is earmarked for stocks. The inability of the market to follow through on the downside after Wednesday’s 138-point plunge in the DJIA

There must be a monstrous amount of cash out there that is earmarked for stocks. The inability of the market to follow through on the downside after Wednesday’s 138-point plunge in the DJIA without even a weak open attests to that.
Until there is a better alternative than stocks, the amount of cash needing a place to be put to work will remain high. What’s more, the cash seeking stocks will remain high, since any stock sold for whatever reason, will result in cash to re-invest.

The market was oblivious to the economic news this week that included some disturbing reports that indicated the economic growth was slowing.
The European Central Bank’s (ECB) decision to lower its primary refinancing rate to 0.5 percent from 0.75 percent, designed to jolt the euro area’s economies out of their slump, contributed to yesterday’s surge, though it was expected.
If buyers are this frenzied now, what will they be like in the latter stages of this bull market when speculative fever really escalates ?
What is perplexing is the ability of the market to recoup all its Wednesday loss on only half the volume of trading.
Hot money ? High speed trading ? Or just money managers pressured to put cash to work, and an absence of sellers.
A better-than-expected Employment Situation report at 8:30 this morning triggered a sharp jump in futures in pre-market trading, Private sector payrolls rose in April to 178,000 from 154,000 in March..
The DJIA is in line to open close to 100 points higher. This is the kind of action that causes investors to buy recklessly for fear that the market is going to totally run away from them, even at these levels. It breeds a speculative fever that eventually spills over to small company stocks and a wild, out of control market.
Investor’s first read – an edge before the open
DJIA: 14,831.58
S&P 500: 1,597.59
Nasdaq Comp.: 3,340.62
Russell 2000: 939.85
Friday, May 3, 2013 (9:12 a.m.)
SEQUESTER: Stay tuned, it is starting to hit. Erskin Bowles told CNBC Squawk Box yesterday sequester is a “stupid” way to handle deficit reduction.
At some point, the question will be raised about the sequester’s impact on the economy, notwithstanding the uncertainty it brings to persons at risk, directly and indirectly.
It is too early to expect anything to show up in the indicators, and it may never be a major issue if our economic recovery gains traction.
It is one of those potential negatives one has to consider along with other ingredients that lead to a decision to buy or sell.
Employers (government or private) may opt to furlough employees without pay, cut back on hours rather than release them to unemployment at the expense of the government. Even so, several weeks without pay has an impact on the economy.
This is one of those uncertainties that, along with a few others, can trigger a consolidation or pullback in the stock market.
Apple (AAPL: $445.52)
Aided by a strong surge in prices, and a day’s rest, AAPL briefly punched through resistance at $444. Resistance is now $456. While daily trading volume has been high in recent weeks, yesterday was an exception. Support is now $428. AAPL can run higher. This would be its 5th rally since it started its descent from its September 705 all-time high. While the four preceding it failed to follow through, this one is different. For one, it comes from a severely depressed level, off 45% from its high. For another, it is accompanied by above average volume. It broke a downtrend line four days ago at $434, so I think the bottom “is in.” A test of that bottom of sorts is likely with the 2nd bottom coming in near $426.
I am not long or short AAPL.
FACEBOOK (FB – $28.97)
Shareholders clearly “liked” what they heard from management Wednesday. The stock surged on heavy volume, as detractors obviously beat a retreat.
FB is now back to a level ($29) that served as resistance to two attempts to move higher in February. It may need a day or two of consolidation with support at $28.25 before moving higher.
I am not long or short Facebook.
This was a big week for economic reports. Monday and Tuesday’s were:
Pending Home Sales jumped 1.5% in March on track to an increase of up to 7% over 2012. Sales are being held back by a limited supply, which stands to be good for home prices.
On a sour note, the Dallas Fed Manufacturing Index plunged in April to a minus15.6 vs. +7.4 in March. Economists were expecting the index to read +5.0. The biggest weakness was in new orders. The production index slipped to minus 0.5 from 9.9.
The S&P Case-Shiller Home Price Index for 20 cities rose 9.3% over a year ago.
The Chicago PMI (regional business) Index for April plunged to 49.0 from 52.4, but the Consumer Confidence Index jumped to 68.1 in April from 61.8 in March. The ICSC-Goldman Store Sales Index rose 0.4% from a week ago.
On Wednesday, the ADP Employment Report fell short of projections, coming in at 115,000 hires vs. a projection for 155,000. The Employment Situation report comes at 8:30 Friday.
Yesterday, Jobless Claims declined 18,000 vs. projections for an increase of 3,000. The biggie is the Employment Situation report which came at 8:30 this morning with private payrolls for April up 178,000 from 154,000 in March.
Employment Situation (8:30): 153,000
Factory Orders (10:00): -2.8%
ISM Non-Mfg Ix. (10:00): 54.0
*Stock Trader’s Almanac
George Brooks
“Investor’s first read – an edge before the open”
[email protected]

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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