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Wall Street Quandry

Investor’s first read - Brooksie’s edge before the openWednesday, August 15, 2012 9:17 a.m.DJIA: 13,172S&P 500: 1403.93Nasdaq Comp.: 3016.98Russell 2000: 796.88A breakout-fakeout? Did

Investor’s first read – Brooksie’s edge before the open
Wednesday, August 15, 2012 9:17 a.m.
DJIA: 13,172
S&P 500: 1403.93
Nasdaq Comp.: 3016.98
Russell 2000: 796.88
A breakout-fakeout? Did institutions and traders sell into yesterday’s breakout above a 7-day consolidation ?
Too early to tell, but the market ran out of steam yesterday, as investors juggle positives, negatives and uncertainties
Frequently, stocks will enter a corrective phase right after a breakout above recent highs in what appeared to be a green light to load up.

A correction here would find initial support at DJIA 13050 (S&P 500: 1385). Breaking that, the next support would be DJIA 12,945 (S&P 500: 1375).
Another “breakout” (above DJIA 13,230) would be more significant, suggesting an attack on May’s DJIA 13,360 high.
We should be getting the word any day now !
This is a big week for economic reports. The Street is in a quandary, not sure whether it wants good news or bad news. Good news means the Fed is less likely to employ additional stimulus to the economy. Bad news suggests it will.

How pathetic is that? Wow!

At 8:30 this morning Consumer prices for July were reported unchanged as in the prior month.. Excluding food and energy, the CPI was up 0.1% in July vs. a gain of 0.2% in June.
The Empire State Manufacturing Index declined 5.85 points in August vs. a gain of 7.39 ib July.

Facebook ($20.38 ) FB is testing the lowest price it has hit since its IPO at $38. Breaking that would pave the way for plunge to $16.88, my worst case projection.. It will need heavy volume to fulfill a classic selling climax, somewhere on the order of 200 million shares +. Down from its IPO price of $38 and high of $45, it will attract bargain hunters at some point, so be alert – they will show up, though news yesterday that hedge fund Tiger Management acquired 2 million shares of FB (price ??) didn’t do more than slow down its sell off. The ban on sales by insiders lifts Thursday the 16th as the first of several “lockup” periods end, indicating the potential exists for an increase in selling pressure.( Lock-up period: a period of 90 – 180 days after an IPO during which insiders are forbidden to sell shares).

SO, the big question is, will holders of these locked up shares sell ? With the stock down 43% from its IPO price, maybe not. However, the shares will overhang the market potentially putting a “lid” on the price as it attempts to move up.
Over the next nine months, close to 1.91 billion shares will become eligible for sale vs. 421 million shares trading now. Initially, 271 million shares will become eligible for sale Thursday.
Clearly, this is a deterrent to buyers, though a buyer “in-size” may want to test the waters. What would be good for the stock would be if one of the major holders like
Microsoft (MSFT), which sees itself as a strategic partner as it jousts for position with Google (GOOG), bought more. That would be very positive.

Goldman Sachs, Accel Partners and Microsoft control at least 200 million shares.*
As the worst ever major IPO, FB has lost$38.8 billion in market value since its May 17 offering.
An 8/14 Deal Journal article, “Facebook’s Lockup Expiration: Who Could Sell,” details the possibilities.
I have written about stocks throughout my career, as well as the market and a zillion of related issues. I elected not to get into stocks in this blog, simply because it is so time-intensive each day within such a short window (6 a.m. – 9:15a.m.). Writing comes easy, it’s the access and pondering pre-market info that is demanding.
This business is getting so international now that whether it is the market or stocks, overnight news can change the picture from the prior day.
I was just so driven to call attention to another blatant Wall Street hype, I had to share my views with readers, some of whom I’m sure would like to kick me where it hurts, since I have not been the bearer of good news.
I’m going to have to look for an exit from FB, probably after its selling climax, or not-so-ugly bottoming process.
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO, because I felt at $34 it was very vulnerable in face of all the misunderstanding and hype.
ECONOMIC REPORTS: Big Week for economic reports.
NFIB Small Business Optimism Index (7:30) – Down 0.2 points in July to 91.2 in line with general economic weakness.
Producer Price Index (8:30) – Up 0.3% in July after a 0.1% rise in June and 0.1% increase in May. Prices at the wholesale level were up 0.5%, corn was up 35%.. Core, excluding food and fuel was ahead 0.4%. Year over year core was up 2.5%.
Retail Sales (8:30) – July retail sales were up 0.8% with all components contributing after softer than expected sales in June.
Business Inventories (10:00) – Q2 inventories rose 1.2% vs, a 1.6% rise in Sales in the quarter were unchanged bringing the Inventoy/sales ratio up to1.27.
Consumer Price Index (8:30) – Unchanged in July vs. no change in June. Ex food and energy, the CPI rose 0.1% following a 0.2% in June.
Empire State Mfg Survey (8:30) – declined 5.85 points in the August 12 reporting period vs. an increase of 7.39 points in the prior period.
Industrial Production (9:15) – Up 0.4% in June after a drop of 0.2% in May. Capacity Utilization improved to 7.9%
Housing Market Index (10:00) –Surged 6 points to 35, the biggest gain in 10 years. The index reflects the sentiments from a survey by the NAHB regarding the economy and housing market.
Jobless Claims (8:30) – Fell 6,000 in the August 4 week to 361,000 bringing the 4-week average to 368,250, 10,000 less than the month ago trend.
Housing Starts (8:30) – Bounced 6.9% in June after a drop of 4.8% in May. Gains were in both single-family and multi-family homes.
Philadelphia Fed Survey (10:00) – Improved slightly in July, though only a positive blip in a soft environment.
Consumer Sentiment (9:55) – Flat in July
Leading Indicators (10:00) – Down 0.3% in June after a rise of 0.4% in May. This is a composite index of 10 economic indicators.

George Brooks
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.