The Market is Probing for a Base

George Brooks |

nyse, wall street, economy, stock marketInvestor’s first read      - Brooksie’s edge before the open

Thursday, April 12, 2012        9:08 a.m. ET

DJIA: 12,805.39   S&P 500:   1368.71

TODAY:  The market dropped too far too fast  over the last 5 days and is probing for a comfort level as institutional  investors try to assess new negatives and uncertainties.

I expect some cautious buying in here since most stocks have pulled back 3% - 5%.  Currently, I see the upside limited to a rise to DJIA 12,895 (S&P 500: 1377). A earnings surprise could bump it higher.

As we have seen in the past, it’s difficult to gauge the seriousness of  Europe’s sovereign debt issues,  because of differences between euro-area country’s economies, cultures and politics, as well as what action the ECB will take.

Safe to say, the U.S. economy is grinding out a recovery; if it falters the Fed will step in to goose it.

Tuesday I said we were faced with two negatives (Spain, possible slowing of the U.S. economic recovery) and one uncertainty (Q1 earnings).

Comments by Fed Vice-Chair Janet Yellen and published in Wednesday’s Fed. “Beige Book” suggest a moderate economic recovery with growth in all 12 Fed Districts and no worrisome signs of inflation other than fuel costs. The Fed plans to maintain a “highly accommodative” policy with low interest rates through 2014.

Italy’s borrowing costs are  increasing in sympathy with rising interest rates in Spain.  A re-ignited fear of contagion as a result of Spain’s problems will continue to temper enthusiasm for aggressive buying in stocks here.

That leaves Q1 earnings where Bloomberg’s survey of economists concludes S&P 500 earnings will increase 8.3% this year. Better than expected earnings could push stocks higher even in face of bad news out of Europe and a lack of reassurance that the U.S. economic expansion is still moving forward.

Jobless Claims for the week ending April 7 were up 13,000 to 380,000, but were likely impacted by  seasonal adjustments for the Easter Holiday. Producer Prices were unchanged in March vs. a 0.4% gain in February.

Without a major catalyst, this market needs time to think!

ECONOMIC REPORTS this week:

TUESDAY:

ICSC Goldman Store Sales (7:45) rose 0.5% for week ending April 7 up 4.5% over a year ago.

Wholesale Trade (10 a.m.) Sales were up 1.2% to  $409.4 billion from January and up 9.3% over a year ago.  Inventories were $478.9 billion, up 0.9%  over January and up 9.3% over a year ago. The Inventory/Sales Ratio was unchanged at 1.17.

WEDNESDAY:

Import/Export Prices (8:30) jumped  1.3% in March after a revised 0.1% increase in February due to higher oil prices which were up 1.8% in February alone, 18.4% year over year.

Beige Book (2 p.m.)

Treasury Budget (2 p.m.)The budget deficit increased 5.3% in March. For the first six months of  the fiscal year (OCT) the budget deficit is $779.0 billion vs. $829.4 billion for the same period a year ago.

THURSDAY:

Jobless Claims (8:30) Declined 6,000 for  the March 31 week to 357,000 bringing the four-week moving average down 4,250 to 361,750.

International Trade (8:30)The international trade gap expanded in January to 52.6 billiom from $50.4 billion in December. The increase in the gap was accounted for by a widened deficit in petroleum goods.

Producer Price Index (8:30) Surged in February 0.4% powered by a 1.3% spike in energy. Core PPI was off 0.2%.

FRIDAY:

Consumer Price Index (8;30)Jumped 0.4% after a 0.2% gain in January. Excluding food and energy, it was up 0.1%.Gas prices were up 6.0%, food prices flat.

Consumer Sentiment (9:55 a.m.) The Reuter’s Univ, of Michigan Consumer Sentiment  Index for March rose to 76.2 vs.75.3

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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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Symbol Name Price Change % Volume
KEY KeyCorp 12.05 -0.19 -1.55 13,195,708

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