Wednesday, July 11, 2012 9:12 a.m. ET
S&P 500: 1341.47
Nasdaq Comp.: 2903.22
Russell 2000: 795.17
TODAY: My support at 12,620 and S&P 500: 1330, held yesterday, but will be tested again in coming days.
O.K., let’s step back from the daily clutter of statements by Fed members, politicians and economists and try to assess the market’s comfort zone.
The market has held up quite well in recent weeks, thanks to an accord among Europeans regarding the euro and the development of better ways to cope with sovereign debt problems going forward.
While problems in Europe may be on hold for the moment, the agreement reached two weeks ago should have had a more bullish impact on U.S. equities.
Europe’s problems overhung the stock market, consumer sentiments and business decisions off and on for months, years.
CONCLUSION: The stock market has recovered two-thirds of the loss it incurred in its 10% May – June decline.
That rebound is at risk of a breakdown.
While “Europe” is out of the way for now, other uncertainties weigh heavily on the market AND a quick fix is unlikely.
Economies here and abroad are edging toward recession. Not only is there uncertainty about the November elections, the U.S. Congress has been unable (unwilling) to address key issues, the biggie being the “fiscal cliff,” automatic spending cuts and the Bush era tax cuts.
The political campaign between now and November will do nothing to create optimism.
Corporate earnings growth has enabled stocks to press upward since the bull market began in early March, but now that growth has slowed, and in many cases turned to negative growth.
I don’t see how the rebound that started on June 4 can survive this uncertainty – too much waiting around for something to happen.
TODAY: A break below DJIA 12,620 (S&P 500: 1330) in coming days raises the chance that key support at DJIA 12,450 (S&P 500: 1310) will be broken.
That would set the stage for a much bigger decline
WHAT WOULD HELP ?
A big surprise in Q2 earnings. The Street is bearish on earnings. If they come in better than expected, it would help head off a big decline
Facebook (FB) – Whether the recent buyer was an investor or a short covering a position doesn’t much matter. As I suspect, the stock has hurt/disappointed a lot of investors and sellers will show up every time it crosses $32 until that resistance is worked off.
ECONOMIC REPORTS: A light week for economic reports.
Consumer Credit (3:00p.m.) – Surged $17.1 billion in May, more than forecast, driven by the biggest jump in credit card debt in 5 years. Estimates ranged from $4 billion to $15.6 billion with the median forecast by 32 economists surveyed by Bloomberg News.
NFIB Small Business (NFIB) Optimism Index (7:30a.m.) – The index of confidence among 740 small business owners declined to 91.4 in June from 94.4 in May reflecting an increasing lack of optimism by small business leaders, edging 0.1% lower in May. I would be surprised if this index lifts before fall.
Wholesale Trade (10:00a.m.) – Slight improvement in the trade gap in April due to a drop in imports as trade gap declined to %50.1 billion from $52.6 billion in March. The gap has been narrowing since early 2010.
FOMC Minutes (2:00p.m.) – The Street will study the minutes for a clue to future Fed policy, especially for the possibility of further economic stimulus.
Jobless Claims (8:30) – Fell 14,000 foe June 30 week to 374,000. The 4-week average stands at 385,750.
Treasury Budget (2:00p.m.) – The Treasury deficit is down 8.9% eight months into government FY vs. a year ago. Receipts are up 5.4%, outlays off a smidge.
Producer Price Index (8:30a.m.) – Dropped 1.0% in May after a drop of 0,2% in April. PPI has beenin a slide since August 2011.
Consumer Sentiment (9:55a.m.) – Index dropped to 72 in final two weeks of June. Now down from a 2011 year-end of 75.
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.