Investor’s first read – Brooksie’s edge before the open
Monday, March 26, 2012 8:39 a.m. ET
DJIA: 13,080.73 S&P 500: 1397.11
TODAY: Strong open indicated by futures. As projected in Thursday’s post, the market revisited my support levels and reversed to the upside by way of a two-day reversal. This is hard to shut off and understandably so, there is still a lot of cash out there to put to work. We have buyers on dips and they aren’t dickering for much of a concession before stepping in. (That’s what I meant Thursday when I said you can gain a better read of a market’s strength by monitoring its weakness.
Hedge funds are hurried (and catch-up) buyers and there is an enormous amount of buying potential yet to be unleashed from “safe” haven monies hiding out in treasuries, CDs, money markets, etc., that will flow into stocks now that the international crisis has eased.
This huge reservoir of buying power will be difficult to deplete, since for every purchase of stock there is a seller who then has cash to put to work. Until the sellers walk away, there will continue to be buyers.
Some of the buying in recent months has been by hedge funds, either covering shorts or establishing long positions. Based on data compiled by the International Strategy & Investment Group (ISI) and reported by Bloomberg News, hedge funds are frantically switching from bearish positions to bullish ones at the fastest rate in two years.
Many of these hedge funds were invested in bearish positions that targeted lower prices, not in “safe” investments as a hiding place (treasuries, CDs, money markets, etc.) Can you imagine the impact on the market that money from “safe” investments switching to stocks will have when investors realize that the crisis is over?
According to ISI, investors placed $70.6 billion in hedge funds last year bringing industry assets up to $2.1 trillion. ISI estimates investors have placed another 5% in hedge funds year-to-date.
I can understand missing the market during the uncertain times that persisted most of last year for an investor who has limited funds and therefore a lower risk tolerance, but for a money manager with so much cash on hand, I don’t get it. Do these guys know how the cycles work, or are they quants treating this business like it like an advanced math puzzle?
It’s a tough business, no ease of entry, no short cuts, no boy wonders, and it is mostly a game where the luxury of delusion is punished .
There are some forecasts ahead of today’s economic reports (see calendar below) and they indicate an improving economy. Durable Goods for February are projected to be up 3% following a drop of 3.7% in January. Consumer Confidence in March is expected to holdsteady after reaching a 12-month high in February. Household and business spending is expected to show another increase and the S&P/Case-Shiller index of home prices expected to show a smaller decrease in house values vs. a year ago.
MONDAY: Pending Home Sales Index (10 a.m.) – a leading indicator to housing activity. Rose 2.0% in January. Year over year gain was 10.5%
S&P Case Shiller Home price Index (9 a.m.) – tracks monthly changes in residential real estate in 20 metropolitan regions. The December index fell 0.5% after a drop of 0.7% in November.
Consumer Confidence ( 10 a.m.) –Based on consumer perceptions of business and employment conditions , as well as six months hence. February’s index jumped 9.3 points to 70.8 well above the recession low of 25.3.
MBA Purchase Applications (7 a.m.) Applications for mortgages. It is a leading indicator for single family home sales and new home construction.
Durable Goods (8:30 a.m.) Declined 3.7% in January following a revised 3.3% rise in December.
GDP (8:30 a.m.) – Last estimate for Q4 was plus 3.0%
Jobless Claims (8:30) Dropped 5,000 for week ended March 17 bringing the 4-week moving average down to 355,000.
Personal Income and Outlays (8:30 a.m.) Increased 0.3% in January after a 0.5% gain in December. Nice gain expected in February report.
Chicago PMI (9:45 a.m.) Purchase managers survey of regional business conditions. Rose 3.8 points (6%) to 64 in February. New orders index jumped 8.8% a good omen for this week’s report.
Consumer Sentiment (9:55 a.m.) a survey of 500 households regarding financial conditions and attitudes about the econo9my. Slipped 1.0% in a preliminary March survey.
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.