Trader's Buy on Test of Tuesday's Lows

George Brooks |

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

Wednesday, May 9, 2012        8:15 a.m. ET

DJIA: 12.932.09

S&P 500:   1363.72

Nasdaq Comp.: 2,946.27

Russell 2000:  793.22

Yesterday’s plunge in stock prices had all the makings of a reversal with the DJIA and S&P 500 regaining more than half its loss and Nasdaq composite and Russell2000 regaining nearly all of the loss for the day – volume expanded.

This is what I mean when I refer to as a “probing” process, or seeking a “comfort level.”

Before yesterday’s rebound the S&P 500 was down 4.8% in six days.  What more can an institution in accumulation mode want ?

Traders should be happy with this volatility. Within two months we have had two surges of 5.5% and 4.2% and two downswings of 4.6% and 4.8% with some smaller ones in the interim.

No one is talking about lower oil prices, with crude hitting $95.57/barrel and gold $1596 before stabilizing.

The “Sell in May and Go Away” folks were feeling prescient, at least until some very heavy volume stopped a run on the market in the early hours, yesterday.

Contrary thinkers are thinking the old saw may be wrong this year that  May-to-November may be a better than the usual. That could be if Congress gets off its duff, bends on party  lines and passes some bills.

The passage of legislation could be reassuring that our government is not dysfunctional after all.  This was one of the reasons the stock market did so poorly during the last six months of 2011, a pre-presidential election  year,  the best of the four-year cycle.

TODAY: The “probing” process will continue with stock prices attempting to find a level that discounts the uncertainties that presently dominate the scene.

Presently the futures indicate a weak open  with the DJIA down 75 to 85 points in the first 30 minutes of trading in a test of yesterday’s intraday lows of DJIA 12,789 (S&P 500: 1347.

It would be very positive if the DJIA could hold above 12,855 (S&P 500: 1357) where I see normal support coming in. It’s going to be close.  Those are the levels I expect it to hold.

If the market can’t hold above yesterday’s lows, look for another “probe” lower to DJIA  12,770 (S&P 500: 1345).

Worth noting, the Nasdaq Composite and Russell 2000 regained nearly all of their Tuesday loss yesterday, a positive sign. Traders should be ready to step in at the open. Investors should be ready to nibble.

ECONOMIC REPORTS:  Now that investors are questioning the sustainability  of the economic recovery which started in June 2009, these reports are watched closely.  Unfortunately, answers to this question won’t be forthcoming this week, the schedule of reports is light.

MONDAY:

Consumer Credit (3:00) –  Rose $21.4 billion in March, driven mostly by purchases of autos and funding of educational costs.   Revolving debt  which includes credit card debt increased $5.2 billion.  The big jump in March follows an  $8.7 billion increase in  February following  a revised $18.6 billion rise in January.  A big jump in non-revolving credit for automobile purchases has driven a big seven month surge,

WEDNESDAY:

Wholesale Trade (10 a.m.) – wholesale inventories rose 0.9% in February, sales rose even more (1.2%), however the stock to sales ration remained unchanged.

THURSDAY:

International Trade (8:30 a.m.) The U.S. International Trade gap narrowed sharply in February to $46.0 billion from $52.5 billion. Both petroleum and non-petroleum goods  contributed to the decrease.

Jobless Claims (8:30) – declined a healthy 27,000 in the April 28 week to 365,000.

Import/Export Prices (8:30) – Rose 1.3% in March as imported petroleum prices surged 3.0%.The rise in petroleum prices spilled over to industrial supplies.

FRIDAY:

Producer Price Index(8:30) – Unchanged in March after a big 0.4% rise in February. Core PPI gained 0.3%, following a gain of 0.2% in February. Energy decreased 1.0% after a 1.3% jump in February, however gasoline dropped 2.0% after a 4.3% jump in

February.

Consumer Sentiment Index (9:55 a.m.) –The Index increased to 76.4 in April from 76.4 in March.

George  Brooks

*Bloomberg.com

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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

Companies

Symbol Name Price Change % Volume
RFP Resolute Forest Products Inc. 4.35 0.00 0.00 361,907

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