Stocks Showing More Technical Weakness

George Brooks |

Yesterday’s market action muddied the technical waters, suggesting a higher risk of a drop in the market today and Monday. Risk is a drop to DJIA 13,445 (S&P 500: 1446). While stock prices didn’t drop much yesterday, the pattern is one of growing weakness. All it takes is for money managers to step back for several days and selling will take a toll.

Investor’s first read - an edge before the market opens
DJIA: 13,548.94
S&P 500: 1457.34
Nasdaq Comp.: 3072.87
Russell 2000: 837.12
(Friday, October 19, 2012 (9:09 a.m.)

September Retail Sales, the Empire State Manufacturing Survey, Industrial Production, and the Housing Market Index numbers came in this week above projections.

Housing Starts soared 15% in September and Business Inventories are lower relative to sales, a good omen for manufacturing.
The Philly Fed Manufacturing Survey jumped to a positive reading of 5.7 in October from a minus 1.9 in September and the Leading (economic) Indicators rebounded 0.6% in September after a drop of 0.4% in August.

The only bummer so far was the Jobless Claims for the week ending October 13 which were up 46,000 to 388,000 bumping the 4-week average up 750 to365,000. As noted last week when the claims were down 30,000, that drop was suspect due to either seasonal adjustments or numbers for one or more states not included in the data.

One has only to look at the revision of data for prior weeks or months to understand that reported numbers can be incomplete. Any number that deviates a lot from the norm as the claims number did, is suspect and I think that is how the Street saw last week’s claims.
All things considered, this is not an economy that is heading into recession.

That said, these indicators do not fully reflect the weakening of key economies abroad.

Q3 EARNINGS:
So far, corporate earnings for Q3 are coming in a bit better than expected with 76 of the S&P 500 companies beating estimates, 18 falling short. The premature release of Google’s (GOOG) earnings yesterday hammered its stock and was a warning shot across the bow of any investor who wants to jump the gun and buy aggressively just because earnings to-date are not as bad as projected.

FISCAL CLIFF:
How this plays out can hammer stocks, or lift them sharply in celebration that a major negative has been removed from the market environment.

Uncertainty over the horrors of a plunge over the fiscal cliff will turn to outright fear when headlines on the adverse impact of billions in automatic spending cuts and tax increases replace the debates on Page One.

How it is dealt with depends on who wins the presidency. Continued obstruction by Congress is not an option this time. Its inability (or unwillingness) to make the hard choices has already skewered our economic recovery and to a lesser extent those abroad.
Regardless of party affiliation, the BIG money has too much to lose by more partisan jousting.

Next year is a “post-presidential” election yea, when parties in power tend to address the tough, contentious issues, clearing the way for the mid-term elections, more importantly the two years leading up to the next presidential election.*

FACEBOOK (FB - $18.97):
Today: Bizarre ! FB’s Wednesday surge above $20 was short-lived as it immediately reversed direction and plunged 7% to yesterday’s low of $18.89. I would have to attribute most of the reversal to fallout from the premature release of Google’s (GOOG) disappointing earnings report and resulting 68-point (9%) plunge in its stock. While a technical bounce to $19.50 is possible, the cage has been rattled here and new buyers wary.
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO because on May 21, I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38.
George Brooks
*Stock Trader’s Almanac: This is a “must own” publication, loaded with daily, weekly, monthly savvy. It is “the source” for strategies, seasonalities, recurring events, useful stats. Published annually, I have used it every year since 1968. Nothing compares !
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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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Symbol Name Price Change % Volume
ARDM Aradigm Corporation 2.18 -0.16 -6.84 160,580

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