Investor’s first read – Brooksie’s edge before the open
Friday August 3, 2012 9:15 a.m.
DJIA: 12,878.88
S&P 500: 1365.00
Nasdaq Comp.: 2909.77
Russell 2000: 136.64
CONCLUSION: The bull market started in early 2009 followed months later by the economy. Since then, both have been challenged by one crisis after another, BUT have survived.
If it wasn’t the BP oil spill, or the tsunami in Japan, it was brinkmanship by our own Congress resulting in the looming “fiscal cliff.”
Two worries stand above all others – CRASH ! If only the Street could be assured that the euro won’t dissolve, spreading financial chaos around the globe and triggering yet another great recession here, the stock market could find a more stable, less volatile footing, one that would enable a solid leg up.
So far, Europe’s leaders cannot guarantee the euro will survive. Leaders in key countries have promised its survival, but more is needed than words.
Here, in the United States, the Street wants action by the Fed to ensure a continuation of the economic recovery that started in mid-2009. Investors are nervous about slumping economic indicators in recent months.
That’s why bad news is perceived as good news, the Street wants the Fed to step in with new measures to goose the economy and essentially ensure that the recovery will continue.
While the economic reports in recent months indicate a softening in the economy, they aren’t quite ugly enough for the Fed to panic. Today’s Employment Situation report for July was 163,000 new hires, better than expected. While the futures are very strong before the open, the big question about the near-term direction will be determined by the market’s ability to hold today’s gain.
If the Street sees these employment numbers delaying Fed action, the market will retreat. If it believes evidence of a further deterioration in the economy is likely, the Street will buy, egro – “Bad is good.” Straaaaaange stuff.
TODAY: Look for an upmove of 220 Dow points to 13,100 before 10 o’clock, then a correction with the potential of giving back one-half to three-quarters of the gain by early afternoon. A strong close is needed by the bulls.
Facebook (FB: 20.88) FB will attempt a rebound today in sympathy with LinkedIn (LNKD) whose stock is up 10% after it reported better than expected earnings. I have forecasted a low for FB below $20 a share. While it hit $19.82 yesterday, I think more work needs to be done before a meaningful recovery can take place. Resistance to the upside starts at $21,18. My worst case scenario is for a low is at $16.88, where it would be for a fraction of a second before rebounding to $18 – $19. It would then test that low.
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I did start covering FB after the IPO, because I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. There are cases where a company offers a great product/service, but its stock isn’t a good buy.
ECONOMIC REPORTS:
MONDAY:
Dallas Fed Economic Rpt (10:30a.m.): The Index plunged in July to a negative 13.2 from a positive 5.8 in June. New orders dropped to 1.4 from 7.8. These were the first negative readings in 10 months.
TUESDAY:
Personal Income/Outlays (8:30a.m.): Rose to $61.8 billion (+0.5%) in June, Disposable P.I. rose $52.4 billion (+0.4%). Personal Consumption Expenditures declined $1.3 billion in the period.
S&P Case-Shiller 20-City Home Price Index (9:00a.m.): Average home price in May increased 2.2% over April. !7 of the 20 regions surveyed showed increases.
Chicago PMI (9:45a.m.): Rose slightly in July to 53.7 from 52.5 in June. New Orders were up to 59.9 from 51.9, but employment sagged to 53.3 from 60.4.
Consumer Confidence (10:00a.m.): unexpectedly rose to 65.9 from 62.7 well above projections for 61.5. Lower gas prices and an improving housing market helped boost sentiments.
WEDNESDAY:
ADP Employment Rpt (8:15a.m.): Jobs increased an estimated 163,000 in July vs. a 176,000 jobs in June and 136,000 in May.
PMI Manufacturing Index (9:00a.m.): Declined to 51.4 in July from 54.0 in June, New Orders dropped to 51.0 from 53.7.
ISM Manufacturing Index (10:00a.m.): Declined to 49.8 in July from 47.7 in June. New Orders increased slightly to 48.0 vs 47.9 in June
Construction Spending (10:00a.m.): Advanced 0.4% in June vs. a 1.6% jump in May. The increase was driven by private residential spending which increased 1.3% after a 3.1% jump in May.
THURSDAY:
Jobless Claims (8:30): 8,000 jobs were added in the week ended July 28 bringing the 4-week average to 365,500.
Factory Orders (10:00a.m.): June declined unexpectedly by 0.5% after a jump of 0.5% in May. Estimates ranged between a decline of 0.9% and a gain of 1.9%
FRIDAY:
Employment Situation Rpt (8:30a.m.): Increased 163,000 in July vs a revised 64,000 in June. Private Sector jobs rose 173,000 vs. 73,000. The Unemployment Rate rose to 8.3% from 8.2% for the period.Rate
ISM Non-Manufacturing Index(10:00a.m.): Declined 3.0% in May to 52.1.
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.
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