HIGHLIGHTS TODAY: Big investment picture, fiscal cliff, stock market correction, presidential election, Unemployment rate, leading indicators, housing, jobs, euro-discord, economy, recession, corporate earnings, Google, Facebook
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TODAY: Stock-index futures indicate a mixed open. Resistance starts at DJIA 13,247 (S&P 500: 1426). Yesterday’s market action suggests those levels are a stretch, near-term. Support levels held yesterday, but remain unchanged. Minor support is DJIA 13,065 (S&P 500: 1406).
Aggressive buying or selling will wait for the election results. The economic impact of Sandy will persist for many months and is most likely far greater than currently estimated.
The storm hit at a time when the economy was struggling to gain traction. While certain sectors of the economy will benefit from spending to rebuild ravages areas, it won’t be enough to offset the huge losses incurred, which currently are estimated to be north of $25 billion. The damage could reduce the annual rate of growth for Q4 GDP by 0.5 percentage points, bringing it down to 1.6%. But spending on a
recovery stands to add to the economy in coming quarters – not exactly a wash, but an offset.
Investor’s first read – an edge before the market opens
DJIA: 13,096.46
S&P 500: 1412.16
Nasdaq Comp.: 2977.23
Russell 2000: 818.73
(Thursday November 1, 2012 (9:04 a.m.)
All this Reminds of neglected spending on our nation’s infrastructure and raises a question about the impact our actions are having on our environment. If the answer is YES, we are adversely impacting our environment, nothing we do 100 to 200 years from now can reverse that.
My answer: Stop fighting wars abroad, put the army to work here rebuilding our infrastructure. An additional benefit would be these service people would receive training that would be valuable after they leave military service.
We never should have suspended the draft. Good experience, good discipline, as well as a counter to politicians who want to send our service people to unnecessary and pointless wars. Let Congress go, see how tough they really are. They want to “carry” ? They can do it there.
Key support is DJIA 13,040 (S&P 500: 1403) A break below those levels calls for a break below 13,000 for the Dow and 1400 for the S&P).
I believe an increased cash position is justified. How large depends on one’s tolerance for risk.
The divisiveness in Congress and the horrors of the fiscal cliff, combined with uncertainty about corporate earnings in coming quarters is not a formula for a stable market environment in coming months. It stands to keep institutional investors on the sidelines, even trigger some selling and lower prices.
Even factoring in a 4% drop in the market so far, prices do not discount the potential for a further drop as the 24/7 press will soon turn to the fiscal cliff (sequestration) and Congress’ unwillingness to compromise to avoid automatic spending cuts and the potential for an expiration of the Bush-era tax cuts.
A New Negative: Will everyone get a chance to vote Tuesday due to power outages in the Northeast ?
However, a correction from here would set up an excellent buying opportunity as the market finds a comfort level.
FIRST TRADING DAY OF FY FOR 21% of MUTUAL FUNDS
Yesterday was the last day of the month and for 21% of open-end mutual funds the last day of the fiscal year which they had to make adjustments to portfolios.
There were losing positions these funds didn’t want to show in their annual report, but also potential winners they did want to show !!
Today is the first day of the month and new fiscal year for some mutual funds to purchase stocks that won’t be seen by the public until their next report.
These investors will likely sell certain stocks they DID want to show in their year-end report to shareholders.
POLITICAL/STOCK MARKET PATTERNS:
In 7 days we will have the election behind us, but not the uncertainty. If President Obama is re-elected the market should drop in face of a continued stalemate in Congress over the fiscal cliff. If Gov. Romney wins, the market should spike up, but any important decision on the fiscal cliff will be postponed until he is in office long enough to establish his administration. Delay equals uncertainty, which is not good for the market.
This week will produce a lot of economic reports that will shed some light on the economy, not the least of which are the ADP Employment report, which today reported an increase of 158,000 jobs in October and the 8:30 a.m. Employment Situation report Friday. The latter includes the Unemployment Rate which last month came in at 7.8%. It had political significance last month. Critics of its viability will be watching closely.
NOTE: Due to the storm, the Employment Situation report may be delayed, Estimates are currently that the Unemployment rate will come in at 7.9% vs. 7.8% in the last report.
FACEBOOK (FB – $21.11): FB tried to stabilize above $20.73 yesterday. FB’s inability to move up is complicated by millions of shares coming on the market that could be sold , shares that were in “lock-up” from its IPO. On Monday 234 million shares became eligible for sale, on Nov. 14,777 million shares become eligible and on Dec. 14 another 156 million shares. Yesterday’s volume was 99 million shares.
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 on May 21, I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38.
George Brooks
*Bloomberg.com
**Stock Trader’s Almanac: This is a “must own” publication, loaded with daily, weekly, monthly savvy. It is “the source” for strategies, seasonalities, recurring events, useful stats. Published annually, I have used it every year since 1968. Nothing compares !
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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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