Investor’s first read – Brooksie’s edge before the open
Thursday, March 8, 2012 9:02 a.m. ET
DJIA: 12,837.33 S&P 500: 1352.63
Yesterday’s market action was in line with my expectations, the DJIA and S&P 500 ran into selling resistance at my targeted levels.
However, contrary to my expectations, it did not sell off at the close.
That means a firm open today.
Buying today’s open is risky, as I think we will be in a correction mode for a few weeks, either in a sideways-to-down consolidation or sell off.
Today’s strength is fueled by good news out of Greece, the prospect of lower oil prices and O.K. news on Jobless Claims and hopes for a good Employment Situation report at 8:30 Friday.
Buying in this market will require good timing and patience.
Yesterday I said there were five negatives overhanging the stock market at this time, three could vanish quickly (Greece’s bond swap concerns, rising gasoline prices, and Tensions about Iran’s nuke pursuit). Two I said will take time (recession in foreign countries and its impact on the U.S.).
Worries about Greece are already off the table.
I think the rise in oil prices will peak soon. Bart Chilton, Chairman of the CFTC, was on CNBC this morning and acknowledged there “IS” excess speculation in oil futures and that the CFTC has a measure to counter it.
Iran is off Page One for now.
That leaves recession or economic slowdown in Europe, Brazil, China and India as a concern and the impact on the U.S. economy. These concerns are not capable of disappearing overnight and the market will need to find a level that discounts this uncertainty.
“What could change the picture ?” I asked yesterday
“Very strong U.S. economic numbers.”
CONCLUSION: This looks like a normal, healthy correction after a largely uncorrected sharp run up since late November. Without a huge increase in new hires in tomorrow’s Employment Situation report, I think the upside is limited for now, making new buying risky for several weeks. Patience.
- 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., but Factory Orders declined 1% in January vs. an expected 1.5% rise. Contributing to the drop was higher oil prices and the expiration at year-end of the tax credit for business allowing full depreciation on equipment purchases. The report runs counter to the Fed’s Feb. 29 Beige Book report stating that manufacturing expanded at a steady pace across the country with some districts showing gains in capital spending, especially in auto-related industries.
- ISM Non-Manufacturing Index (10 a.m.) – encompassing 90% of the U.S. economy rose sharply to 57.3 in February from 56.8 in January which was also strong.
- ISC Goldman Store Sales (7:45 a.m.)Covers major retail chains, but limited to 10% of total retail sales. Retail sales increased 1.3% over the past week and 1.7% vs. a year ago.. Sharply higher gasoline prices and weather were contributors.
- 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. For the week ended Feb. 24, loan requests for home purchases jumped 8.4 percent, refinancings declined 2.2 percent.
- ADP Employment Report (8:15 a.m.): Employers added 216,000 jobs in February, in line with the consensus.
- Productivity and Costs ( 8:30 a.m.) Increased 0.9 percent vs an estimated plus 0.7 percent.
- 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.) expanded by $17.8 billion in January. Non-revolving credit (includes federal student loans) increased $ to $1.7 trillion, the highest since 2011. 20.7 billionConsumer Credit rose $19.3 billion in December following November’s $20.4 billion gain. Both months saw sizable gains in credit card usage.
- Jobless Claims (8:30 a.m.) Claims were up 8,000 for the week ended Mar. 3. The four-week moving average is now 355,000.
- 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 to 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.”
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“
March 6 DJIA: 12,759 “Technical Correction Underway For Wall Street“
March 7 DJIA: 12,837 “Not Yet! Market Will Probe for a Comfort Level“
March 8 DJIA: 12,907 “Uneasy Market Anticipates Peaking Gas Prices“
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.