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Talk Without Action + Stock Market Whipsaw

Investor’s first read   - Brooksie’s edge before the openThursday, June 7, 2012        9:08 a.m. ETDJIA:  12,414.79S&P 500:  1315.13Nasdaq Comp.: 2844.72Russell 2000: 

Investor’s first read   – Brooksie’s edge before the open

Thursday, June 7, 2012        9:08 a.m. ET

DJIA:  12,414.79

S&P 500:  1315.13

Nasdaq Comp.: 2844.72

Russell 2000:  764.35

TODAY: The market averages plowed through minor resistance yesterday en route to more formidable resistance at 12,430 (S&P 500: 1317),  levels I said would be “tough to beat” without a major breakthrough here on the economy and abroad on debt issues.

In face of yesterday’s surge, I am raising resistance to DJIA 12, 535 (S&P 500: 1327).

I also “warned of the news whipsaw,” a phenom whereby the market becomes highly volatile as it responds to alternating flows of good and disappointing news.

I expressed doubts that a meaningful recovery would not take place until the fall.

Jobless Claims for the week ending June 2 were down 12,000 to 377,000. The 4-week moving average was down 1,750 to 377,750.

In light of concerns about a slowing economy, this was not a bad number.

Monday’s, “Fed to Step in to Stem the Carnage” was spot-on. I wrote that we can now expect the Fed and European leaders to  employ measures to address sagging economies.

U.S. stock-index futures jumped sharply early this morning on an announcement that China’s central bank has cut its interest rates in an effort to counter the slowing growth of its economy. Its one-year lending rate will now be 6.31&, down from 6.56%. This is the latest of moves to help its economy. It also will pump money into its economy via public works spending and the delay until 2013 of a tightening of bank capital rules.  China’s sagging economy was one of the global drags on current and future economic growth here and abroad.

European stocks were up overnight in expectation that global policymakers and central banks will do what is necessary to stimulate growth. Europe’s Stoxx 600 racked up a big gain after the European Central Bank announced its intention of responding to slippage in global economies.

As noted in Monday’s post, Federal Reserve officials were out in the hustings with positive commentary. Fed Vice Chair, Janet Yellen, San Francisco’s John Williams, and Atlanta’s Dennis Lockhart all indicated an intention to push for action to stimulate the economy if needed.

The European Central Bank (ECB) Governing Council announced Spain is in a position to request a European Union (EU) bailout.

Facebook (FB) –Noting that FB dropped below the upper end of my projected decline (24 – 26), I said I expected it to bounce to 27.36. I also indicated it was not without risk of a further drop if solid news was not forthcoming.

   Yesterday’s surge in stock prices and a strong follow through today will enable FB to edge higher, possibly as high as $29.36 ( a real stretch), as shorts hurry to cover and some bargain hunters jump in. I think it will take time for the wounds to heal here. It has a lot of sellers waiting to unload on its attempt to move up. At some point, traders will be shorting it again.

This stock cannot afford to  falter here. A drop below 26 again stands to set the stage for a drop into the low-20s.

ECONOMIC REPORTS:  Stock prices have accelerated their decline in face of increasingly dour reports on the U.S. economy. Is this just another summer slump?

Will this trigger QE3 by the Fed? What’s important about this week’s line up of reports is a lot of Federal Reserve  brass is out there addressing the issues – hmmmm.


Factory Orders (10p.m.) Booking orders dropped 0.6% in April after a revised decline of 2.1% in March.


ISM Non-Manufacturing Rept (10p.m.) The ISM Index bounced to 53.7 in May from 53.5 in April. The New Orders Index registered a bigger increase posting 55.5 vs. 53.5 in April, however employment in the sector dropped to 50.8 from 54.2.  Growth in activity, but a drop in employment.


Productivity and Costs (8:30) Q1 business productivity slipped at an annual rate of 0.5% after 1 1.2% rise in the prior quarter. Hours worked increased at an annual rate of 3.2% vs. 2.4% in the prior quarter, however compensation slowed to 1.5% from 3.9% in Q4.

Beige Book (2p.m.) Produced two weeks ahead of Federal Open Market Committee meetings (FOMC), the book reports on the economic conditions in each of the 12 Federal Reserve districts. It CAN offer clues to future Fed policy changes.


Jobless Claims (8:30) Claims increased 10,000 in the May 26 week to 383,000 bringing the 4-week average to 374,500. Claims have been sliding down for well over 18 months.

Bloomberg Consumer Comfort Index (9:45) This Index results from a weekly survey of American views of the economy, their personal finances and buying intentions.


International Trade (8:30) The trade gap widened to $51.8 billion in March from $45.4 Billion in February. Exports rose 2.9% after a 0.3% increase in February. The deficit in non-petroleum goods was a major contributor.

Wholesale Trade (10p.m.)Wholesale inventories rose 0.3% in March with sales up 0.5%, the inventory/sales ratio remained unchanged at 1.17.


George  Brooks


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.