Technical Bounce Then a Lower Close

George Brooks |

Technical Bounce Then a Lower CloseInvestor’s first read   - Brooksie’s edge before the open

Friday, June 22, 2012        9:18 a.m. ET

DJIA:  12,573.57

S&P 500:  1325.51

Nasdaq Comp.: 2859.09

Russell 2000:  764.53

As warned yesterday, a break below DJIA 12,750 (S&P 500: 1346) would result in a”nasty tumble.”

It was a delayed reaction to commentary out of the Federal Reserve. If the Street was unpleasantly surprised by Thursday’s weak economic data, it shouldn’t have been.

TODAY: Expect a mixed open with the potential for a brief bounce across DJIA 12,630 (S&P 500: 1332).

Minor support is DJIA 12,505 (S&P 500: 1316).

Without more clarity for Europe, the U.S. Congress and global economies, this market will have difficulty moving much higher.  It looks like sideways-to-down, a choppy market, for several months or until clarity is established.

Businesses and individuals are nervous about Europe, but more so by the so-called “fiscal cliff” – automatic spending cuts and the potential for tax increases that ‘are slated” to go into effect next year.

Most disturbing is the unwillingness of most of Congress to set aside partisan politics and deal with it. Congress is not expected to deal with it before the November elections, which leaves it short of two months to do so after the elections.

What business is going to commit to hiring or spending in face of such uncertainty.

As the prospect of Congressional dysfunction  taking center stage in coming months, the consumer will likely reduce plans to spend.

This uncertainty can drag the stock market lower until is reaches a level that discounts negatives.

As both the stock market and economy suffer, expect the Fed to step in to head off a freefall.

The economy needs a functional Congress more than it needs lower interest rates which are crushing people on fixed incomes and businesses like insurance companies which rely on investment income for their bottom line.

A Bloomberg news headline today, “Euro Chiefs Spar on Greek, Spanish Aid,” raises an alarming prospect – Maybe the euro won’t make it, maybe the dominos just have to tumble with global casualties.

The shortcomings of the euro have been obvious for more than two years, more than  enough time for leaders to address the sovereign the debt problems of the EU’s weaker members.

Yet, they are still sparring. With a recession looming for most European countries, the potential to “grow out” of the debt problems is fading fast.

Common sense says European leaders will set aside their many differences and employ enough damage control to head off contagion.

I think investors must be prepared for the possibility that they can’t do it.

Facebook (FB): No change. FB has had a “lid” on it in the 32 area, though yesterday’s ability to run counter to the overall pummeling stocks were taking was impressive. That “relative strength” has to make the shorts nervous, it wouldn’t take much to chase the shorts in here with the result being a move to 34-36. Pre-market trading indicates a break above 32.

ECONOMIC DATA:  Big week for economic data, especially Thursday (see below).  The Federal Open Market Committee (FOMC) meets Tuesday with commentary and Fed chief Bernanke’s press conference Wednesday at 2:15 p.m.

MONDAY:

Housing Market Index (10a.m.)-Rose to 29 in June from a revised 28 in May.  Currently, tight lending conditions and inaccurate appraisals are to blame for fewer closings, according to David Crowe, Chief economist for the NAHB.

TUESDAY:

Housing Starts (8:30a.m.)- declined 4.8% in May to 708,000 vs a revised 744,000 in April. Both multifamily and single house sales were good, apartment house construction adversely impacted the number for May.

WEDNESDAY:

FOMC Meeting Announcement 12:30p.m.)-

FOMC Forecasts (2p.m.)

Bernanke Press Conference (2:15)

THURSDAY:

Jobless Claims (8:30)-dropped 2,000 in the June 16 week to 387,000 claims. The 4-week average was up 3.500 to 386,750.

PMI Manufacturing Index (9a.m.)-Slipped 2.1 points in May to 52.9 in June from 54.0 in May.

Existing Home Sales (10a.m.)- dropped 1.5% to an annual rate of 4.55 million units, in line with forecasts. The median price of a home rose to $182,000, 7.9% ahead of a year ago. Up 3.4% in April after a 2.8% drop in March. Gains were solid across all regions, however year-to-date is flat.

Philly Fed Survey 910a.m.)-Dropped in May to a negative 16.8 from a negative  5.8 in May, far worse than projections.  A year ago, this  Index plunged from the 40 level in February to a negative 25 in August, rebounded  to a positive 10 until March 2012 after which it declined. Its behavior in 2010 was similar. I took the data from a chart so the exact numbers may vary slightly.

FHFA House Price Index (10a.m.)-Rose more than expected by 0.8% over April. The index is 17.6% below its April 2007 peak.Year over year rate also surged to a plus 2.2% reflecting a pronounced increase in home prices.

Leading Indicators (10a.m.)-Declined 0.1% in April after a 0.3% rise in March and 0.7% jump in February. Building permits and jobless claims were the big contributors to the April decline.

*Bloomberg.com

George  Brooks

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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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GIGA Giga-tronics Incorporated 0.68 0.05 7.78 37,503

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