Investor’s first read – Brooksie’s edge before the open
Tuesday, March 6, 2012 9:05 a.m. ET
DJIA: 12,962.81 S&P 500: 1364.33
Back to climbing a wall of worry – worry about the U.S. economy, worry about China, which cut its economic growth target to 7.5% from 8%, and of course continued worry about a European recession following it Q4 GDP decline of 0.3% from Q3.
TODAY: U.S. stock-index futures indicate a lower open of as much as 85 – 95 points in the DJIA. This is the 5%-7% correction I have been warning about. It shouldn’t extend more than 7% unless current negatives worsen or new negatives surface at the point when the market is ready to rebound. That’s when it becomes a 10% to 12% correction. There’s no way to anticipate that now.
Monday’s economic reports brought mixed signals as Factory Orders for January were down 1%, while the ISM Non-Manufacturing Index jumped more than expected.
Oil will continue to roil expectations for global economies. All combined, these uncertainties can put a lid on the October – March surge in stock prices UNLESS the economic numbers for the United States continue to firm up.
This is why I have placed so much importance on economic reports. Our economy is the one thing that could override European concerns and the spike in oil prices, which I suspect is temporary, driven by tensions out of Iran and speculation in futures.
Downside Risk:
As a double-check of my technical analysis of the DJIA, I perform a technical risk analysis of each of the 30 Dow Jones industrials , add the results, and divide the by the DJIA “divisor.” I compare this with my conclusion for the DJIA as a whole.
For the DJIA, I see a risk down to 12,440. Analyzing each of the 30 Dow industrials, I see it closer to 12,310 or a decline of 4.7% and 5.7% respectively.
Yesterday the Nasdaq was weaker than the DJIA as only 9 of its 40 most important stocks in its composite advanced vs. 14 of the 30 stocks the DJIA. The smaller company based Russell2000 broke February support two days ago The DJIA, S&P and Nasdaq will break it today.
What could stabilize the market ?
Obviously, an improvement in the things that disrupted it in recent days. Lower oil prices would help, but stronger economic numbers this week and in coming weeks.
I see this as a technical correction that was going to happen, it just needed something to send buyers to the sidelines and prompt others to lock-in profits and do some selling. It is shaping up as a buying opportunity.
ECONOMIC REPORTS:
MONDAY:
- Factory Orders (10 a.m.) – Thanks to strong Durable Goods’ orders December was up a solid 1.1% after a big 2.2% jump in Nov..
- ISM Non-Manufacturing Index (10 a.m.) – January was strong, as was December. A very comprehensive index.
TUESDAY:
- ISC Goldman Store Sales (7:45 a.m.)Covers major retail chains, but limited to 10% of total retail sales.
WEDNESDAY:
- MBA Purchase Allowances (7 a.m.)Measures purchase applications at mortgage lenders. Provides gauge of housing demand – a key to giving current economic recovery a boost.
- ADP Employment Report (8:15 a.m.):This will be scrutinized carefully for a clue to what Friday’s Employment Situation report produces. Very Important.
- Productivity and Costs ( 8:30 a.m.) Hours worked generally increases before new hires
- EIA Petroleum Status Report (10:30 a.m.):Weekly report of inventories here and abroad, with some bearing on prices for petroleum prices.
- Consumer Credit (3 p.m.)Rose $19.3 billion in December following November’s $20.4 billion gain. Both months saw sizable gains in credit card usage.
THURSDAY:
- Jobless Claims (8:30 a.m.)Was down 2,000 for the week ended Feb, 25, Four-week moving average is now 354,000
FRIDAY:
- Employment Situation (8:30) Was up a solid 243,000 in January, 203,000 in December and 157,000 in November. The unemployment rate dropped tro 8.3% from 8.5%. Average workweek was steady at 34.5 hours.
- International Trade (8:30 a.m.)The trade gap worsened in December as imports jumped. The nonpetroleum goods deficit increased to $36.5 billion from $34.1 billion, while petroleum products slipped to $26.9 billion from $27.6 billion.
- Wholesale Trade (10 a.m)Measures the dollar value of sales made and inventories held by merchant wholesalers. It rose 1.0% in December. The stock-to-sales ratio is considered “very lean and efficient.”
Recent Posts:
Feb. 6 DJIA: 12,845 “Follow the Money as It Exits Safe Havens“
Feb. 7 DJIA: 12,878 “Market Held Up By Sneaky Buying“
Feb. 8 DJIA: 12,883 “Is It Safe For Bulls to Come Out and Play?“
Feb. 9 DJIA: 12,890 “BIG Money Buying the Future“
Feb. 10 DJIA: 12,801 “Can a Greek Deal Be Accomplished Over the Weekend?“
Feb. 13 DJIA: 12,874 “Easy Does It! Some Selling Into Good News Expected“
Feb. 14 DJIA: 12,878 “Investors Should Expect “Market Churn”“
Feb. 15 DJIA: 12,780 “Market Churn to Include Brief Correction“
Feb. 16 DJIA: 12,904 “Another Snag in Greek Bailout + Long Weekend = Extended Correction“
Feb. 17 DJIA: 12,949 “Investors Establish Bullish Turf“
Feb. 21 DJIA: 12,965 “The Market’s Stall is Deceptive While Selected Issuers Could Hum“
Feb. 22 DJIA: 12,938 “Rotation of Strength: Continuing Opportunities as Market Averages Remain Sluggish“
Feb. 23 DJIA: 12,984 “Market Stall Masks Opportunities“
Feb. 24 DJIA: 12,982 “Speculators Hyping $4 Gasoline by Summer“
Feb. 27 DJIA: 12,981 “Stock Prices: “May the Force Be With You”“
Feb. 28 DJIA: 13,005 “Big Test for Bulls Today“
Feb. 29 DJIA: 12,952 “Opportunities Exist Even in a Lethargic Market“
March 1 DJIA: 12,980 “Bull Market Intact – But Correction Likely in Coming Weeks“
March 2 DJIA: 12,977 “Selective Opportunities – Don’t Get Careless“
March 5 DJIA: 12,962 “Up or Down? Week’s Economic Reports Hold Key“
George Brooks
*Bloomberg.Com
**National Journal
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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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