Damn ! I wrote Wednesday’s blog Tuesday night and was on the road early the next day, getting a jump on other drivers exiting North Carolina’s Outer Banks ahead of Hurricane Earl.

The stock-index futures prior to the open Wednesday would have been a tip-off to a strong open rather than a weak one I anticipated. This is one reason, I wait until 9:20 am to release my blog, yesterday being an exception.

The futures can give a good heads-up on the day’s trend, specifically that economic indicators released this week would NOT be a bad as I thought.

Nothing else changes. Yesterday’s strength is what I have been looking for. It indicates that institutions will step in at these levels. It is what I call a “probing” process.

According to the Stock Trader's Almanac, triple digit moves (up/down )in the stock market are common on the Friday before Labor Day.

Support is DJIA 10,140 (S&P 500: 1065 )
Resistance: DJIA 10,380 ( S&P 500: 1094 )

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

Thursday, September 2, 2010 9:24 am EDT

DJIA: 10,269.47
S&P 500: 1080.69
Nasdaq Comp.: 2176.84
Russell 2000: 624.99

Today’s jobless report didn’t have any pre-open impact. That leaves Factory Orders and Pending Home Sales at 10 o’clock, then the Employment Situation at 8:30 and the ISM Non-Manufacturing Index at 10 o’clock tomorrow.

Stepping back, this is all about what is a reasonable price to pay for stocks under today’s “known” and “perceived” economic conditions.

The BIG money, hedge funds, and most institutional investors will buy stocks at a specific level if they see values considerably higher a year out. While the economic news may stink now, they will buy now if they anticipate it will make better reading next year.

In fact, they welcome the gloom, because it lets them in at bargain prices.

And of course, for every buyer there is a seller who must then buy another stock or opt for a miniscule yield in Treasuries, money markets, etc. –worse yet long-term bonds.

As I have noted recently, long-term bonds are risky.

Yes, I know I stand alone with that opinion, but I think the bond market is at or approaching a HIGH, much like the stock market hit a high in Q4 of 2007.

Once the bond peaks, and interest rates bounce off historic lows, paper losses will be very painful and not be reversed for years.

Can’t happen ?

All it will take is for the Street to begin to see the prospect of a rise in interest rates six months to a year ahead and the bond market will take a hit.

George Brooks

This week is loaded with economic reports and I don’t think they will make good reading.

The market rose Friday in response to the Fed’s reassurance that it would step in with more stimulus if necessary. Some of that buying was short covering.

Monday’s downer was more realistic, as the market braces for a host of reports that may raise fears that the nation will come close to, or enter into, another recession.

I still see DJIA 9,600 - 9,700. I am changing my S&P 500 target to 1015.

This could be a critical week in the bottoming out process.

If this week’s economic news is really bad, it should prompt a nasty shakeout in the stock market on the order of 300 - 400 Dow points, possibly 500 - 650, by the end of the week with a sharp rebound taking place Friday or next Tuesday.
That would mark the first of two bottoms in this major correction which comprises the first leg of a bull market (DJIA 6,440 - 10,952).

Investor sentiment among individuals is as low as it was at the bear market bottom in March 2009. Extreme pessimism is characteristic of major buying junctures, which I see imminent.

There are people who want a crash for a number of reasons. I do not think the BIG money is part of that.

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

Tuesday, August 31, 2010 7:34 am EDT

DJIA: 10,009.73
S&P500: 1048.52
Nasdaq Comp.: 2153.65
Russell 2000: 601.72

The economic reports this week include retail sales, home prices, economic conditions, employment, unemployment, production, and home sales. If that’s enough, we will get commentary from analysts in the Street, and hype from the press as it jousts with other press for viewers, readers and listeners.

Tuesday: ICSC Goldman store sales, S&P Case - Shiller Home Prices, Chicago PMI, Consumer Confidence, State Street Investor Confidence.

Wednesday: MBA Purchase Applications, ADP Employment, ISM Manufacturing, Construction Spending,

Thursday: Chain Store Sales, Jobless Claims Productivity, Factory Orders, Pending Home Sales.

Friday: Employment Situation, ISM Non-Manufacturing Index.

If the economic news is mixed, as well as the response by the stock market, expect a less dramatic bottoming process.

George Brooks

Friday’s rebound was largely in response to the Fed’s reassurance that it would step in with more stimulation if the economy sags much further. Perhaps some investors bought stocks thinking that was the bottom of an 8% correction that started on August 9. Others covered shorts.

Near-term this rebound should find resistance starting at DJIA 10,215 (S&P 500: 1071 ) and support at DJIA:10,025 (S&P 500: 1051 ).

Again, we see a level where institutions are willing to buy stocks, not bet the ranch, but buy stocks.

We can have some good days thrown in here, but I think Friday’s turning point will be tested in coming weeks.

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

Monday, August 30, 2010 7:20 am EDT

DJIA: 10,150.15
S&P 500: 1064.59
Nasdaq Comp.: 2153.63
Russell 2000: 616.17

For all the reasons that have been so widely published, the nation’s economy is struggling after an initial snapback from the worst recession since the 1930s.

This is no surprise to the BIG money, and the possibility of a double-dip recession would not surprise them either.

Double bottoms are common in the stock market, why not in the economy ?

We are experiencing what can reasonably be expected – a bottoming and healing process after a horrendous economic/ financial crunch. Liftoff after this near-meltdown cannot be “vertical” or even steep. Anyone expecting that is a dreamer, or hasn’t done their homework.

The key is, at what level do stock prices discount this slowdown, as well as a double-dip recession ?

More important, what will the economy be doing a year from now and how conservatively are stocks priced now vs a reasonable pricing in the future – 2011, 2012, etc.

The bear market bottom in March 2009 occurred at:
DJIA: 6440*
S&P500: 909
Nasdaq Comp.: 1596
Russell 2000: 342
*intraday

This bottom occurred in face of more adversities than are present now. We are not now facing a global meltdown like we were in late 2008 – 2009.

Presently, I see DJIA 9,600- 9,700 (S&P 500: 1030 ) as the downside risk.

I am not looking for the economic indicators to prompt a turn here. It will come when institutions perceive that the current slump is stabilizing and a second stage of the economic recovery beginning to gain traction.

If the BIG money believed the irresponsible negative bias by the financial press, the DJIA would be around 5,500. I am sure they are too smart to buy in to this.

Hopefully, when the elections are over, investors will be given an account of developments free of spin.

I WILL POST A BLOG TUESDAY AND/OR WEDNESDAY IF THE MARKET’S ACTION WARRANTS IT. OTHERWISE, D I WILL BE AT THE OUTER BANKS WITH MY SON AND GRANDCHILDREN.

LAST WEEK WAS UNSCHEDULED – A FUNERAL

George Brooks

Due to tech problems, this site was not recording my blog posts this week.
I was able to send them to readers who have given me their e-mail addresses.

If you wish to avoid this in the future, please send me your address, and I will email the blog to you, as well. I will not use it for any other purpose.

I have set up a web site/blog of my own, but will not be posting immediately.

THE FOLLOWING WAS SENT BY E-MAIL, BUT ONLY POSTED SUNDAY DUE TO TECH PROBLEMS

Stocks are probing for a base.

Today: Good chance for a plunge to DJIA 9,830, before a rally erases most of the day’s losses.

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

Friday, August 27, 2010

DJIA: 9,985.81
S&P 500: 1047.22
Nasdaq Comp.: 2118.19
Russell 2000: 599.76

September is just around the corner, then it’s on to October.

November doesn’t just bring the mid-term elections, it kicks off the “Best Six Months” of the year to buy stocks.Somewhere in there, I see a rare buying opportunity shaping up.

Why ?

Bearish sentiment among the small investor is rock bottom, and the small investor is usually wrong at extremes.

According to the American Association of Individual Investors (AAII ), the individual investor is as bearish as he was at the bear market bottom in March 2009.

The index tumbled to 20% bullish from 30% in just one week.

We are approaching a classic buying juncture. It can come as one spike down or a series of spikes. Mid-term election campaigning will get uglier than ever. The media’s negative spin, is fooling everyone but the BIG money, which will be scooping up super bargains ( again ).

George Brooks
sensiblesleuth@gmail.com

testing aug 23

Yesterday, I said the market would break support at DJIA 10,360 (S&P 500: 1085 ) if The Philly Fed report and Leading Economic Indicators scheduled for release at 10 o’clock jolted the market. Prior to the open, prospective buyers had already turned tentative by a disappointing “Jobless Claims” report at 8:30.

The Philly Fed report was down rather than up, and the leading indicators were barely positive, suggesting what we already know – that the economic recovery is slowing down.

The market sold off immediately, not so much because the numbers were bad, but that they weren’t at least barely positive.

Odds now favor a further decline to DJIA 10,000 (S&P 500: 1055 ). And of course, as I have noted several times, DJIA 9,600 – 9,700 (S&P 500: 1030 ) are possible before the November elections. If you think political spin is bad now, wait six weeks.

Institutions are flush with cash, corporations are flush with cash, the individual investor is nowhere in sight.

ANYONE EXPECTING HELP FROM ECONOMIC INDICATORS IN COMING MONTHS IS GOING TO BE DISAPPOINTED.

THE BULLS’ HOPES NOW HINGE ON INSTITUTIONAL INVESTORS AND WHETHER THEY CAN LOOK BEYOND THE ECONOMY’S STRUGGLES TO MORE STABLE TIMES AND PUT SOME OF THE TRILLIONS OF DOLLARS IN CASH TO WORK.
At this juncture, it is easy to be bearish. Most of the media is, the technical picture is shaky, and economic reports blotto.

Unexpected strength in face of all this would be impressive, very impressive.

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

Friday, August 20, 2010

DJIA: 10271.21
S&P 500: 1075.63
Nasdaq Comp.: 2178.95
Russell 2000: 610.96

There are recurring indicators and market bromides that are helpful. The “Sell in May, and go away,” is one of them. The Buy on November 1 and sell on May 1, an even better one.

Bears are not hard to find.

Recently, I read on Bloomberg.com that the Hindenburg Omen suggests a slump in stocks.

The Hindenburg Omen, named for the huge German zeppelin that exploded in 1937, gave Societe Generale’s’ Albert Edwards reason to call for a “savage equity downturn” in the stock market.

Essentially, the “Omen” states that when an unusually high number of stocks on the NYSE reach new 52-week highs vs those hitting new lows, (generally a ratio of two-to-one) and the McClellan Oscillator* is negative, a decline can be expected.

Simply put, the Omen is saying that the market is hitting an upside extreme and due for a correction when new 52-week highs exceed new lows by a two-to-one margin.

I always like to look a raw numbers behind indicators and particularly the starting dates for the calculations or assumptions behind them, just to ferret out distortions.

I credit Edwards for his contrary thinking, but suspect that in this case, the Omen is distorted, since – it begins at a point in time when the market was emerging from a bottoming out pattern October 2008 – July 2009, following the worst bear market since the 1930s. Coming out of that bear market bottom, it took very little to beat the year-ago numbers. As the bull market climbed its wall of worry, it stands to reason it would get more difficult for new lows to increase.

Bank of America’s’ Mary Ann Bartels, ranked #2 as a technical analyst by Institutional Investor magazine, says, “It’s correction time,” citing a number of reasons including a low short interest, the fact that 90% of stocks traded on 10 occasions since April were downers, and technology stocks (18% of S&P 500 ) have slipped below their February 2 support level and to the lowest level since Aug. 27, 2009.

Whoa !

While a low level of shorts suggests a lack of buy power from that source, let’s not overlook the trillions of dollars in institutional investors’ hands that has no other place to go but into stocks. Give them just a light shade of “green” and you got a stampede.

She believes it is bearish that key technology shares comprising 18% of the weighting of the S&P 500 are at August 2009 lows.

Actually, that sounds more like a BUY signal, than a SELL signal.

Both could turn out to be right, I just don't buy their reasoning.

These are treacherous times for the market, as it struggles to find a comfort level that discounts the adversity and uncertainty of these times.

Right now, we are in what I call a “News Whipsaw,” when buyers no sooner feel comfortable accumulating stocks than a piece of bad or disappointing news is released and sellers show up to rain on the parade.

Right now, at this point in time, this is a game of "POSITIONING."

Money managers are faced with a tough choice. Their clients need to make money and recoup losses sustained in 2007-2009. These managers can sit on the sidelines and hope for lower prices, or do their buying now in coming months.

Bear in mind, for each purchase by a money manager there is someone selling. That seller then has cash, and without an attractive alternative, must go back into the stock market. The result ? No net change in the buying power out there.

What money managers CANNOT AFFORD is for the market to run away from them, forcing them to pay up for stocks. Think about it.

*McClellanOscillator: The difference between the 19-day (10% trend) and 39-day (5% trend) exponentially smoothed averages of daily net advance decline numbers. Crosses above zero = positive, downside crosses = negative. A +100 = overbought, A -100 = oversold.

George Brooks

Last week’s Jobless Claims reported at 8:30 this morning were somewhat disappointing. The median forecast was for claims to fall to 478,000 from 484,000 the prior week. They rose to 500,000.

Companies are not hiring yet. While that doesn’t surprise me in light of the fact the economy is crawling out of an economic morass, unmatched since the Great Depression, decision makers on Wall Street need more reassurance that the economy is gaining, not losing, traction, before loading up on more stocks.

The Philly Fed manufacturing report and Leading Economic Indicators will be reported at 10 o’clock. Both are expected to be reasonably good reading.

Today: DJIA support is 10,360 (S&P 500: 1085 ), lower if the Philly Fed and Leading indicators jolt the Street. A solid break above DJIA 10,480 (S&P 500: 1102 ) would pave the way for a sharp move up to DJIA 10,750 (S&P 500: 1130 ).

At "press time" the jury is still out, with the U.S. stock index futures trading slightly on the upside - hmmmm.

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

Thursday, August 19, 2010 9:24 am EDT

DJIA: 10,415.50
S&P 500: 1094.16
Nasdaq Comp.: 2215.70
Russell 2000: 628.04

At yesterday’s close, the DJIA was poised to penetrate its 200-day moving average (dma ) on the upside.

Moving averages are used to smooth out fluctuations in stocks and indexes, the more popular ones being 200-day , 50-day and 10-day moving averages. There is a fairly reliable interaction between stocks and the market averages and their moving average.

A strong upside or downside penetration stands to be followed by a more sustainable move. Failure to penetrate suggests a reversal, i.e., a moving average can act as support or resistance.

Over the last 5 months, the 200-dma has favored the bears, since the major market averages have failed to follow through after an upside breakout.

The DJIA itself has broken down through its 200-dma four times since early May and penetrated on the upside three times, but failed to follow through meaningfully on the latter.

The relationship between market averages and moving averages is less reliable in a whipsaw market like we have experienced during the last 5 months.

Let's not forget, there is so much cash out there in investors' hands and in corporate coffers. It will be put to work.

George Brooks

As expected, the market broke through my first resistance level and even the second at DJIA 10,425 (S&P 500: 1093 ) before settling back to digest its healthy gains.

I also indicated “The BIG hurdle for the bulls beyond those levels is DJIA 10,750 (S&P 500: 1130 ).

I’ll settle for stability and locking-in a support level between DJIA 10,000 and 10,240 (S&P 500: 1056 – 1070 ). There is still a chance of the DJIA getting down to the 9,600 – 9,700 area (S&P 500: 1030 ).*

Tomorrow is a big news day – jobless claims, leading indicators, Philly Fed survey, so today should feature give and take by bulls and bears with support around DJIA 10,360 ( S&P 500: 1085 ) and resistance DJIA 10,450 ( S&P 500: 1098 ).

Brooksie’s Daily Stock Market blog
-an edge before the market opens
Wednesday, August 18, 2010 9:24 am EDT

DJIA: 10,405.85
S&P 500: 1092.54
Nasdaq Comp.: 2209.44
Russell 2000: 626.30

I have seen a lot of bearish chatter coming out of the news media and the Street, I wonder what markets these guys follow. Sounds to me they missed a lot of opportunities and are covering their butts.

Jeff Saut, money manager for Florida-based Raymond James Associates, seems to have it right. Yesterday he told Bloomberg News, earnings look really good, the consumer is in better shape than the headlines would suggest, corporations are flush with cash, and it’s cheaper to buy assets than to build them.

Thank you very much Jeff; I knew somebody out there had to know what is going on.

Yesterday’s U.S. stock index futures were up ahead of the open, but got an extra bump when Industrial Production came in with a 1% gain for July, double the median forecast.

Housing start and permit numbers were poor, but the market rallied anyway.

“There will be a continuing bull market.” Mark Mobius, Templeton Asset Management, told Bloomberg yesterday, adding that the global economic recovery is well in place and may accelerate as growth in developing nations offsets slowing economies in Japan and the U.S..

Anyone out there hear anything about the BP oil spill ?

You see, that is one of the biggest problems we face today – a press that’s focused only on negatives. How about the progress that has been made since the nation, its economy and stock markets were spared an absolute meltdown. That’s not important - only a CRASH ?

In years to come, we will look back on these years as dark ones for journalists and their employers.

What a shame. I think a lot of investors, individuals and institutions, missed a big part of the first leg of the bull market, due to relentless negative reporting, and sensationalism every chance they got. I’ll draw an exception with Bloomberg; I think they do a good job and get what they deserve – respect.

* The broad-based,S&P500 index is the preferred measure of valuation by the Street, yet the press continues to use the DJIA, primarily because it is the one most familiar to the public. Actually, both turn together most of the time, and if you look at its components, the DJIA is a solid average. The latter “price-based, the former, market-value based.

For this reason I usually refer to both in my copy, though it cuts into the flow of message I am sending.

George Brooks

A sharp selloff yesterday in early trading was reversed quickly and followed by an irregular pattern of trading in the DJIA and S&P 500. While the Nasdaq Comp. and Russell 2000 matched this pattern, they were a bit firmer.

Today: a positive open and an attack of resistance in the DJIA 10,360 (S&P 500: 1088 ) area. A solid break above those levels paves the way for rally to the DJIA 10,425 – 10,450 S&P500: 1093) area.

Tuesday, August 17, 2010 9:24 am EDT

DJIA: 10,303.01
S&P 500: 1079.38
Nasdaq Comp..: 2181.87
Russell 2000: 615.10

We have seen unmatched volatility since the May “flash crash,” and, to-date, that is defined by a 1,000-point trading range in the DJIA. It appears that institutions find stocks irresistible a shade below DJIA 10,000, but begins to lose interest when the DJIA reaches 10,560.

They MUST buy stocks for their clients and in an attempt to beat their peers’ performance, in order to keep current clients and gain new ones. That’s the game they play.

As long as they can buy on pullbacks in prices, they will do so. If, however, the clouds in the future begin to lift and these managers begin to fear other investors will buy their targeted stocks running them up and out of reach, the will begin to pay up, ergo a big leg up in the market.

That may not happen until after the November elections.

Try to put yourself in their shoes. You have huge cash reserves that aren’t earning squat. Your only justification for sitting on that unproductive stash is that you think you can buy stocks at lower prices.

What if you are wrong ? Can you afford to join the unemployed, lose the house in Darien, take the kids out of private school, sell the yacht, play golf at a public course instead of the C.C., and tour the Gettysburg Battlefield next summer instead of Europe ?

The stock market is about a lot of things, least of all 200-day moving averages, the Hindenburg Omen, discounted dividends, etc..

It is about human nature, careers, egos, pride, testosterone, etc. While too many decisions today are made by computers, humans program them, and from the looks of it, NOT very well.

On another matter:

Bonds are becoming the darlings of Wall Street at a time yields are rock bottom (prices at highs ). It won’t take a rise in interest rates to turn the bond market down, just a few big hitters heading for the exits in anticipation that they are going to rise in the foreseeable future.

The leverage on the downside can be brutal. That may not happen for six months, a year. It would be wise to at least sit close to the exits.

George Brooks

The market is attempting to base above DJIA 10,290 (S&P 500: 1079 ); I doubt it will hold. Most likely we will get a rally off that level before noon, then a sell off down to the DJIA 10,120 (S&P 500: 1030 ) level today or tomorrow before stabilization.

I see the possibility of a test of DJIA 9,600-9,700 (S&P 500: 1030 ) area before the November elections.

Upside near-term ? Yes, a break above DJIA 10,360 (S&P 500: 1088 ) would pave the way for a rally, but its value would mostly be that of stabilization.

Just bear in mind, money managers have trillions of dollars that must go somewhere, and long-term bonds selling at all-time highs is not the smart place to invest. Short-term yields on CDs money markets don’t cut it.

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

Monday, August 16, 2010 9:24 am EDT

DJIA: 10,303.15
S&P500: 1079.22
Nasdaq Comp.: 2173.48
Russell 2000: 609.49

Let’s accept that the economy is barely out of ICU, and not entirely on its feet yet. It appears that we have survived a CRASH. What seems up for grabs, though, is what value can be placed on a common stock under these circumstances.

I could guess like everyone else, but I really think the market has to sort it out, these are unusual circumstances.
I don’t have much faith in averaging various valuation ratios over the year to fix a price/earnings ratio, etc. for the S&P 500. P/Es have been all over the lot over the last 50 – 75 years.

This uncertainty is reflected in the market’s extreme volatility in recent months, which has ravaged certain stocks, even ETFs.

Individual investors and people managing money for them may have to take smaller positions in a greater number of stocks to counter the risk that computerized, high speed trading has brought to the table.

What could be just as bad is there is a big gravitation to bonds, at a time interest rates are incredibly low. While deflation has most of the big guys more worried than inflation, any hint of a reversal in concerns stands to create immediate paper losses in bond portfolios.

Through July 31, 185 billion was invested in bond funds, the most for the seven months of any year since 1984, Bloomberg.com reports, referring to an Investment Institute Company study.

Free cash flow for U.S. companies stands at 6.8% of market value, the highest level compared with corporate debt yields since 1960 Credit Suisse Group AG notes.

It looks like a classic case of the individual investor being wrong at extremes, chasing strength (yields down/bond prices up ).

Contrarians see it as a buy signal for stocks, at least as far as James Paulson, chief investment strategist for Well Capital Management is concerned, quoted by Bloomberg as saying, “Stocks are a screaming buy relative to bonds.”

The political rhetoric has been nasty to-date, but will get worse, much worse, and that is not an environment that will breed confidence, though both parties should rejoice that WE DIDN’T CRASH. Tactically, the Dems should have let it all crash – economy and stock market, everyone would then be in the same boat, seeking mutually beneficial solutions to the problem, rather than narrowly partisan ones.

So far, the stock market is saying we are going to make it, slowly, but in a year to 18 months looking back, these prices may look very attractive.

Why ? The corporation is a little country unto itself, but better run ! It has flexibility, and the ability to take advantage of opportunities. Also, its personnel are mostly on the same page pursuing goals that produce results.
George Brooks