It will take news that renews doubts that the economic recovery currently underway is sustainable, to jolt the market out of its buy-mode. There are things to worry about, commercial real estate, for one, but institutional investors arelooking beyond known problems to a point when the economic environment is more stable.

So far, they have only slowed down a bit.

A jolt would initially drop the DJIA to the 10,350 area (S&P 500: 1122).

Right now a “fever” is brewing, one that drives investors to buy because they don’t want to miss the party. As a thermometer it’s running about 100 degrees. As a barometer, it’s reflecting increasing confidence in the future.

Brooksie’s Daily Stock Market blog
-an edge before the market opens

Thursday, March 11, 2010 8:30 am EST

DJIA: 10,567.33
S&P 500: 1145.61
Nasdaq Comp.: 2358.95
Russell 2000: 674.93

According to Bloomberg News, “buyout” firms are sitting on $500 billion in cash and are having trouble putting it to work. For one, much of it was raised before the bear market, and these firms are typically given three to six years to work money given them. For another, the sharp rebound in stock prices took a lot of companies off the bargain table.

What were they thinking when stocks were down 50% a year ago ?

If investors want their money back, who could blame them ?

Isn’t this game about buying low and selling high ? Looks like the “targeted” companies are the one’s that are going to be - “selling high.”

Maybe they need to spend some time as a small investor, with limited cash, who needs to make every cent count, who has to crank up the courage to exploit market extremes and buy when others are selling in order to build a portfolio.

After all we have been through, to still be sitting on that much cash, baffles me. Amazing ! Scary ! Where is the ability to THINK ? Give me an 8-figure income, staff, expense account and $20 billion, I’ll make some fur fly, so would some of you !

George Brooks

More of the same, but let’s not complain ! This time a year ago, the stock market was climbing out of a cesspool of devastation and beginning to climb the proverbial “wall of worry” that accompanies all recoveries from bear market bottoms.

This week has been light on economic news. That begins to change tomorrow when we get the Jobless Claims report at 8:30, then Retail Sales at 8:30 Friday and Consumer Sentiment at 9:55.

With the market somewhat “overbought,” any negative news would have a greater impact. Bull markets last longer than one year, though nasty corrections will intervene. Selective profit taking would be prudent here, as well as a cash reserve adequate enough to reduce risk and provide buying power to take advantage of a pullback in prices when we get one.

That could be today, or in a week or two. Right now, institutions are pressed to work their money in the only place they can get a shot at a return – common stocks.

Brooksie’s Daily Stock Market blog
-an edge before the market opens

Wednesday, March 10, 2010 9:24 am EST

DJIA: 10,564.38
S&P 500: 1140.45
Nasdaq Comp.: 2340.68
Russell 2000: 669.63

For the obvious reasons, many investors still doubt the ability of the new bull market to sustain further advances.

With the S&P 500 still 28% below its October 2007 peak, many investors are still in shock. Many sold out near the bear market lows, swearing never to buy stocks again, then missed the rebound.

Bloomberg News reports the results of the most recent weekly survey of the American Association of Individual Investors' tally of stock market sentiment, which shows bulls outnumbering bears by a ratio of 1.37 to 1, far below the 2.0 level that accompanies bull market tops.

Bloomberg News also quotes Ken Fisher, Fisher Investments, manager of a paltry $37 billion, as saying stocks are still cheap. He said, “The nature of the beginning of the second year of bull markets is one where people are still climbing a wall of worry,” referring to their acrophobia (fear of heights).

Ironic, that fear can wield a mace at market bottoms, as well as it is now doing after a bull market is well underway.

Realistically, a pullback/consolidation is justified here, but don’t tell that to buyers of Nasdaq and Russell 2000 stocks. There is an appetite for small-to-mid-size growth.

However, there’s another dimension to fear. Fear of NOT OWNING STOCKS ! That is what appears to be gripping investors more and more these days. They want to recoup their bear market losses, which are still sizable, and they are starting to "run a fever" !

George Brooks

Sellers met buyers head-on yesterday in a stand-off, suggesting the market MAY be ready for a rest. Momentum gained from rising stock prices can be hard to shut off.

In the event of a pullback in prices, look for initial support to come in at DJIA: 10,455; S&P 500: 1126; Nasdaq Comp.: 2280; and the Russell 2000 at 648. This is assuming no new negative news.

Brooksie’s Daily Stock Market blog
-an edge before the market opens

Tuesday, March 9, 2010 8:25 am EST

DJIA: 10,552.52
S&P 500: 1138.50
Nasdaq Comp.: 2332.21
Russell 2000: 667.11

Overbought Condition simplified (somewhat):

An overbought condition is measured in a number of ways, and different analysts, using different indicators, will vary in their conclusions.

Toss a ball up in the air. At some point it will lose its momentum and start back down. With the stock market, buying will run out of momentum at some point, selling will gain the upper hand, and the market will turn down.

OK, that’s ridiculously simplistic, and maybe I have insulted your intelligence, but it is easy to overlook that the direction of the stock market is really a change in money-in and money-out.

There are a host of things that drive those swings, one of them being momentum.

An overbought condition exists when the stock market’s advance has persisted longer than normal and is due for a breather. That can take the form of a pullback in prices, or just a sideways consolidation. However, overbought conditions can be corrected without an ugly downmove.

In light of the fact, the DJIA has surged 8%, the S&P 500: 9%, Nasdaq Comp.: 11%, and Russell 2000: 15%, recouping most of its January/February losses, there is justification for the market to take a rest. It’s actually healthy and necessary if the market is going to have a foundation for another leg up.

George Brooks

It is necessary to repeat what I said Friday that “the market is working through an overbought condition, at a time economic news is one day good, another day bad. Markets can persist in an overbought condition for a while until something triggers a reversal, or Big money backs off, and/or does some selling.”

Right now news seems tilted to the positive. The DJIA and S&P 500 have reached my short-term upside levels, where I expected a correction/consolidation, the Nasdaq and Russell 2000 have exceeded them . Again, those levels were: DJIA: 10,500; S&P 500: 1137; Nasdaq Comp.,2315; and the Russell 2000: 658.

I became cautious as the market averages approached the levels where they recouped two-thirds of the January-February plunge, a point where they should encounter increased selling.

We have not yet seen that selling. In terms of the Nasdaq and Russell, my assessment has been WRONG. There is more momentum there than I anticipated

Brooksie’s Daily Stock Market blog
-an edge before the market opens

Monday March 8, 2010 9:24 am EST

DJIA: 10,566.20
S&P 500: 1138.69
Nasdaq Comp.: 2326.35
Russell 2000: 606.02

We have seen markets press up and up before, like that stupid pink rabbit beating on a drum, but not in this kind of environment.

What makes a market that is pressing up in face of the need for at least a “pause” is, it torments investors sitting on cash.

The urge to go all-in becomes overwhelming. “Hey, other investors are doing it, I just watched three of my “buy” candidates jump in price,” I’m not waiting any longer.”

I am surprised at the persistence of the buying at these levels, following the Feb. 5, bottom. Either the BIG money knew something a couple weeks ago when news was disappointing, OR THEY DON'T CARE.

They are looking out to year-end, and 2011 beyond the Fed’s bump in interest rates, beyond the headlines of commercial real estate’s problems, beyond the disgusting partisan bickering in a midterm election year, and new mid-east problems, to an economic recovery that is gaining momentum, driven by mean and lean corporations, that will be forced to hire in order to accommodate demand.

That’s how they operate most of the time, and if you think you are under pressure to get on board, put yourself in their place. They have clients who have retained them to work their money and recoup their bear market losses.

Conclusion: This kind of momentum can be hard to shut off, and the market averages CAN run further. Investors can make money, but maintain a cash reserve under these circumstances, i.e. Don't bet the ranch just because you are afraid of missing out.

George Brooks

Since the March 9, 2009 bear market bottom, the market has rebounded impressively, reflecting confidence that the nation’s economy will gradually return to stability and prosperity. Since those lows, the DJIA has advanced 62.2%; the S&P 500: 68.4%; Nasdaq Comp.: 81.2%; and Russell 2000: 90.5%.

Today’s Non-farm payrolls and Unemployment numbers for February were surprisingly good. Jobs fell far less than expected, despite severe weather conditions in many states, and the Unemployment rate remained at 9.7%, in the lower end of expectations.

Today, the market is working through an overbought condition, at a time economic news is one day good, another day bad. Markets can persist in an overbought condition for a while until something triggers a reversal, or the Big money backs off, and/or does some selling.

Look for the DJIA to run to break above 10,500 (S&P 500 above 1130). I still see short-term upside levels before a correction/consolidation starting at: DJIA: 10,540; S&P 500: 1137; Nasdaq Comp.: 2315; and Russell 658

Brooksie’s Daily Stock Market blog
-an edge before the market opens

Friday, March 5, 2010 9:25 am EST

DJIA: 10444.14
S&P 500: 1122.97
Nasdaq Comp.: 2292.31
Russell 2000: 652.47

ONE YEAR AGO:

Early last year, investors here and abroad, were anxiously hoping the Fed would announce a plan that would stabilize the nation’s banking and lending facilities, which were teetering on the edge of a meltdown. The DJIA was a wobbly 6,626.

In my March 9th blog I noted, “One little spark related to stabilization and we will get a buying stampede.”

I also noted, that the “Big money may simply jump the gun and buy. It only takes a few big buyers to come off the sidelines, scooping up bargains to pull others in. As I have noted many times, there is some $9 trillion out there in cash, and my estimate of the market value of the NYSE is $8 trillion, so do the math… We are getting so close to a bear market bottom – be ready.”

As it played out, the big money didn’t wait for news, it came off the sidelines with the DJIA bottoming out at 6440.08 on March 9. On March 10, my special BULLETIN said “FIRE” (Buy ), a follow up on preceding blogs headlined “Lock and Load" on Feb. 27 (DJIA 7,182 ), and "Ready Aim...." on March 2 ( DJIA: 6,832 ).

Here’s My Point:

The bull market started without the highly awaited news about stabilizing the banking system.

It started because the BIG money broke ranks and came off the sidelines, not interested in a dickering for lower prices, and fearful other institutions would scoop up the stocks on their buy list. The fear of owning stocks now became the fear of not owning stocks.

What tipped me off ?

While my March 10 BUY was based on my expectations that at any moment the market could turn up out of this extremely oversold condition, it was my observation of the demeanor of both Warren Buffett on CNBC ,Monday, March 9, and Fed chief Bernanke on March 10 - BOTH EXUDED CONFIDENCE.

In my March 10, Special BULLETIN, I noted, “ Fed chief Bernanke was very confident and impressive on CNBC today, bank stocks are a bit firmer, and I think the big money just cannot afford to wait too long to buy.”

Of course big names like Buffett and Bernanke would have to show as much confidence as possible in perilous times like that, BUT it was very obvious, THIS WAS DIFFERENT - they knew this was the IT ! They couldn’t hide it. I pulled the trigger.

George Brooks

Monday’s blog headlined “Brief Breakout on Upside Possible – Do Not Chase Strength.” We got the breakout, which was more pronounced in the Nasdaq Composite and Russell 2000, than the S&P 500. The DJIA fell short.

Yesterday’s blog headlined, “Headwinds, but …..” and that’s pretty much what we got as early gains were erased by profit taking and a lull in buying, following the release of the Fed’s Beige Book report.

Minor support is; DJIA: 10,340; S&P500: 1108; Nasdaq Comp.: 2248; Russell 2000: 641.

Overhead supply hovers close to yesterday’s closing prices. To generate any meaningful upside, the following market averages must break above - DJIA: 10,420; S&P 500: 1120; Nasdaq Comp.: 2284; Russell 2000: 650.

The market is still somewhat overbought, suggesting new buying should be done carefully.

Brooksie’s Daily Stock Market blog
-an edge before the market opens

Thursday, March 4, 2010 8:35 am EST

DJIA: 10,396.76
S&P 500: 1118.79
Nasdaq Comp.: 2280.68
Russell 2000: 649.26

Yesterday’s economic news was positive, though we have Initial Jobless Claims and Productivity coming in before the open today (8:30), then Factory Orders and Pending Home Sales at 10 o’clock.

The Federal Reserve’s Beige Book indicated the economy improved modestly in January and February in 9 of 12 Federal Reserve districts, in spite of severe weather throughout a good part of the country.

The Beige Book is published eight times a year. It is an anecdotal summary of business conditions in all Fed districts, derived from interviews with economists, numerous business contacts, and market experts.

More importantly, February’s Institute for Supply Management (ISM ) for non-manufacturing businesses posted a nice increase. Its index jumped to 53 from 50.5. Estimates ranged between 48.5 and 52.9.

The stability and persistence of the upmove from February 5’s lows is impressive. It came in face of a number of negatives and uncertainties.

George Brooks

The market is starting to run into headwinds, which is attributable to the fact the major market averages have recouped more than two-thirds of the January/February, 9+% loss.

This rebound has been impressive, and especially since it has risen 5% for the DJIA, 7% for the S&P, 9% for the Nasdaq Comp., and 12% for the Russell 2000.

From here, the upside will be tougher, but as long as institutions are buying, the bulls have a slight edge.

I’m sticking with yesterday’s short-term potentials of: DJIA10,540; S&P500: 1137; Nasdaq Comp.: 2315; but have to raise Russell2000 to 658, since it reached my target with ease. Beyond my “short-term” potential, I see a pullback/consolidation, as the market digests its recent sharp upmove.

Brooksie’s Daily Stock Market blog
-an edge before the market opens

Wednesday, March 3, 2010 9:24 am EST

DJIA: 10,405.98
S&P 500: 1118.31
Nasdaq Comp.: 2280.79
Russell 2000: 648.31

Over the past year, I have noted that most institutional investors look out into the future in anticipation of what economic conditions will be. A year ago, many expected a recovery, and bought in face of economic news that suggested otherwise.

Are economic prospects 9 months-to-a-year from now going to be a whole lot better than they are now ? If so, institutions will be buying now, even though we are faced with a slower growth rate, relentless partisan bickering in Washington until the November elections, a commercial real estate crisis, and possibly a crisis we are not aware of yet.

This does not have to be rocket science, though. Investors often overlook BASIC COMMON SENSE when trying to understand what the market is doing. These guys (gals) are paid to run money. They got the job based on their record, and will keep it only if they perform.

Sideline sitting can only benefit these managers and their clients if they sit on cash in anticipation of a decline, then buy-in at lower prices. While they cannot afford to see new purchases decline in value, they cannot afford to see attractive stocks run away from them.

Unless they see a good prospect for a big decline in the market to justify sitting on cash earning less than one-half of one-percent, they have to be buying, and that’s why stock prices go up when logic and known, or anticipated, news says they should go down.

But, just because “they” are buying is no guarantee the market will surge indefinitely. Profit-takers will surface to overwhelm the buyers, or they may simply take a breather, and their absence will enable stock prices to pull back.

George Brooks

That was the breakout I was referring to. The Nasdaq Composite and Russell 2000 led the way, the S&P500 close behind. The less exciting DJIA still has about 80 points to go.

How far can the market run on this move ?

The short-term potential is: DJIA: 10,540; S&P500: 1137; Nasdaq Comp.: 2315; Russell 2000: 648.

The levels below which I do not want the averages to drop remain the same: DJIA: 10,150; S&P 500: 1084; Nasdaq Comp.: 2195; Russell 2000: 620

Brooksie’s Daily Stock Market blog
-an edge before the market opens

Tuesday, March 2, 2010 9:23 am EST

DJIA: 10,403.79
S&P 500: 1115.71
Nasdaq Comp.: 2273.57
Russell 2000: 642.15

The DJIA and S&P500 have recouped two-thirds of their January/February losses, the Nasdaq and Russell have done far better.

This indicates an institutional appetite for the mid-to-small-cap company stocks. These are companies with the durability and growth potential independent of the general economy.

While the charts are generally positive, we are by a number of technical yardsticks, pressing into “overbought” territory where new buying involves the risk of buying- in right before a correction or consolidation. Just keep your cool and be selective.

In a choppy market, purchase price is key, the difference between an immediate gain or paper loss for weeks/months.

Markets can remain “overbought” for days, even weeks, but prudence dictates caution when the market has entered this state. If institutions take a breather, the market will take a hit.

Here’s where the “head-game” comes into play. Investors see a breakout, with the prospects for a firm-to-strong open ( like today ) and are compelled to jump in for fear of missing a move. That, IMHO, is the biggest contributor to poor timing investors encounter. As a hungry human being, we are almost defenseless to resist the urge to go “all-in.”

Others are feeling the same thing, and that suggests an emotional excess in the market. OK, if a stock hasn’t participated yet and sports a green light fundamentally, it’s most likely fine, but chasing a stock that has had a run is risky.

Stronger than it should be ?

The market's recent strength is really interesting ! Does someone know something that is not generally known ?

The charts called for an “UP” day, even a breakout above last week’s highs, but truthfully, I am a bit surprised at the lack of hesitation.

What’s the rush ? We aren’t looking at a steady stream of good news reassuring us the economy will press forward without headwinds. This bull seems to take a pretty good punch.

This recent strength may be institutional buying, since there is no where else to invest, or it could just be momentum that will run out of steam in a couple days.

Every month, we have to cope with confidence/sentiment indicators, but the best indicator for that is the stock market itself. So far it has been more positive than the sentiments expressed by the consumer.

There is still a lot of uncertainty and fear out there, but the BIG money is looking out into the future when people are once again feeling safe. When that time comes, stock prices will be much higher, and guess who is sitting on some handsome gains ?

George Brooks

The market’s action during the last two days has been surprisingly positive in face of some disappointing news. Technically, it’s a pretty picture, but I feel uneasy chasing strength in this environment.

Not jumping in when the market is moving up is always a difficult discipline, and a “breakout" here could be especially tough to resist.

Brooksie’s Daily Stock Market blog
-an edge before the market opens

Monday, March 1, 2010 9:23 am EST

DJIA: 10,325.26
S&P 500: 1104.49
Nasdaq Comp.: 2238.26
Russell 2000: 628.56

I would be careful here, just a hunch. A break above the following would lead to a “spike” in stock prices:

DJIA: 10,480
S&P 500: 1114
Nasdaq Comp.: 2255
Russell 2000: 635

A break below the following would suggest further weakness:
DJIA: 10,150
S&P500: 1084
Nasdaq Comp.: 2195
Russell 2000: 620

It seems that the same old problems continue to plague the market, and there is little reason to think that will change, any time soon.

How many times have we read a headline – “U.S. Stocks Retreat as Confidence in Economic Recovery Wanes” ? You’ll find this headline in a Saturday post by Bloomberg News. Robert Baur, chief economist at Principal Global Investors, was quoted, “The market is on hold until we get more convincing data that the recovery is still holding."

That was followed by “Payrolls Probably Declined in February: U.S. Economy Preview. Payrolls probably fell by 50,000 after declining 20,000 in January, and the unemployment rate may increase to 9.8% from 9.7%, according to 62 economists surveyed by Bloomberg. The report will be released on Friday.

Obviously, some of the economy’s softness is attributable to the horrific weather hammering the Northeast, but most of it is business as usual for an economy struggling to climb out of a near-miss for an economic depression and stock market crash.

I am amazed at how well both have done. What is needed here is common sense.

The stock market has performed better than the economy, which is a positive, since it tends to lead economic turns up and down.

Why ?

Because the BIG money looks out ahead of current reports and sentiments to what conditions will be a year or so out, though interim reports and events will contribute to volatility.

It helps to monitor the market’s reaction to bad news in both bear and bull markets. If it fails to take a hit in face of a piece of particularly bad news, it is telling you the BIG money is using it to buy, that they see better times ahead.

I still see a bumpy year. My greatest wish is for Congress to start working for the best interests of America and not for re-election prospects in November or rigid, extremist ideological policies.

That said, it will be necessary to time buys carefully, buying during consolidations and pullbacks, and avoiding chasing strength. It can be a good year, but I do not see one of those “everything up and away markets, where just about anyone can make easy money. Not there yet.

George Brooks

The DJIA and S&P 500 rebounded sharply from my support levels yesterday, which were actually well below the previous day’s close. The Nasdaq Composite and Russell 2000 got close, but not to the support levels I picked before rebounding.

While the DJIA and S&P recouped two-thirds of their loss for the day, the Nasdaq and Russell got it all back !

That’s impressive ! Very impressive !

Brooksie’s Daily Stock Market blog
-an edge before the market opens

Friday, February 26, 2010 9:17 am EST

DJIA: 10,321.03
S&P 500: 1102.93
Nasdaq Comp.: 2234.22
Russell 2000: 630.46

The big money calls the shots, and they weren’t whispering yesterday.

And it happened after some ugly economic news and ahead of today’s revised Q4 GDP report, Chicago’s ( business conditions ) PMI report ( 9:45 ),U of Michigan’s Consumer Sentiment report (9:55 ), and Existing Home Sales 10:00 ).

Q4's GDP was reported at 8:30am as a revision upward to +5.9% from a +5.7%, in line with everyone's expectations but mine. I expected a slight downward revision, but I'm not going to climb out on the window sill over it.

Their decisions to buy, sell, sit on the sidelines have a huge impact on my “money-in – money out" theory. Fortunately these big hitters can’t do it entirely without showing their hand – it can be read in the price charts of stocks, industry groups and sectors.

The stock market is dominated by institutions – money managers, mutual funds, hedge funds. Most invest for the intermediate-to long-term.

Many bought in a year ago anticipating an economic recovery by now, and are getting it. Buyers today are looking out to where they think the economy will be a year from now, without concern for short-term fluctuations.

That explains in part, why they stepped in yesterday with the DJIA down 160 points and bought, why they stepped in to buy three days ago in face of an uncertain news week, and why they turned the market up on Feb. 5 from a 9%, 13-day plunge with their buying.

They have trillions of dollars someone is paying them to invest, and unless the economy is going to tank big-time this year, they cannot afford to watch another money manager’s clients make the serious money.

Then too, where else can they invest ? Money market funds, T-bills, CDs do not offer an alternative, and it will take a pretty big surge in interest rates before fixed income offers an alternative.

The market is especially sensitive to economic news right now, and understandably so. We have seen the initial sharp rebound in our economy, most of the indicators posting big percentage gains as a result of going up against severely depressed numbers a year-ago.

The math will work in reverse when the year-ago numbers are harder to beat, but that doesn’t mean the bull market is over.

A YEAR AGO:

It has been very close to a year since the great bear market bottomed on March 9 at DJIA 6,440.08; S&P500: 666.79; Nasdaq Comp.:1265.82; and Russell 2000: 342.59.

The following were my blog headlines leading into that bear market bottom.

Hang Tough 2/20/09 DJIA: 7,312
Clarification Needed 2/23/09 DJIA: 7,365
Does the Cauldron of Fear Have to Boil Before This Market Turns ? 2/24/09 DJIA:7,115
When Fear of Owning Stocks Turns to Fear of NOT Owning Stocks 2/25/09 DJIA: 7,351
Big Money in On-Deck Circle 2/26/09 DJIA: 7,270
Lock and Load 2/27/09 DJIA 7,182
$9 Trillion Cash on Sidelines vs $8 Trillion NYSE Market Value 3/2/09 DJIA: 7,062
Ready ...Aim 3/2/09 DJIA 6,832
Big Money Reaching for Bushel Basket 3/3/09 DJIA: 6,818
Once Off Sidelines, Big Money Good for 1,500-2,000 Point Rally 3/4/09 DJIA 6,726
Climactic Buy Possible by Tuesday 3/5/09 DJIA 6,875
Big Flush unless……… ! 3/6/09 DJIA 6,594
Just Be Very Ready For a Big Buying Opportunity 3/9/09 DJIA: 6,626
Will Big Money Wait for Numbers to Improve to Buy ? 3/10/09 DJIA: 6,547
“FIRE” (Buy) 3/10/09 DJIA: 6,805

TECHNICAL ANALYSIS – LEARN THE BASICS

If you do not understand technical analysis, it would help you to do so. A lot of books have been written. Google John Murphy, Stan Weinstein, or William J. O’Neil for a start. Get the Stock Trader’s Almanac.

I got my start in a brokerage board room reading a ticker tape before quote machines. Nothing traded without my reading it. It got to the point I could just listen to the hum of the tape and detect increases and decreases in trading intensity. Then I studied everything I could get my hands on. And……I am still studying !

Every day is a school day in this business. You cannot afford the luxury of delusion for long in this business, because they keep score every day.

But getting close to being right a good deal of the time is complicated by the fact there are always a bunch of balls up in the air, any one of which can plunge down unexpectedly to alter all your conclusions (and net worth !).

Successful investing is much more difficult for individual investors with limited funds. For one, they cannot afford the risks the big investor and institution can take. For another, they must prioritize between buying one stock vs another, whereas the big investor can buy both, increasing his/her chance of one of them doing well, or both, but at different times. Finally, big investors can ride-out a decline, even average out their cost, whereas the investor with limited cash may have to cover their butt and sell.

George Brooks