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Stock Market Opening Report - May 8, 2012

 May 08, 2012 07:48 AM


(By Rich Bieglmeier) The stock market seemed unsure on how to act or what to do following political upheaval and rising anti-austerity sentiments in Europe. The indexes started off slightly in the red, moved up mid-day, and essentially closed unchanged.

Volume wise, it was another lackluster day, which is the new-norm in 2012. The Dow barley managed to escape holiday like volume numbers. Wrap it all up, and it was a blah Monday on Wall Street.

The non-action leaves the market in the same technical place we wrote about yesterday, below key support levels with a greater chance for downside than upside. None of our market models improved, and there is nada on the economic calendar until Thursday morning. It's no wonder the day was short on enthusiasm.

[Related -Initial Jobless Claims Rose Unexpectedly]

A lack of volume and buyers following Friday's rout supports our suspicions. Especially after bulls tried to take stocks up, only to be knocked back by sellers.

Without a catalyst, it is hard to imagine bulls getting excited about buying.  That could change with regional Federal Reserve presidents giving speeches across the county and Ben Bernanke speaking via satellite at the 48th Annual Conference on Bank Structure and Competition on Thursday.

Benny and the InkJets recently added job creation to their mission statement. The various speeches will be the first opportunity for central bankers to tell investors what they plan on doing about the 88 million people "out of the workforce."

[Related -All Quiet on the Record High Front]

If they hint at more twisting, QE3, or some other form digital dollars, their words could breathe life back into a lethargic market. Short of that, our near-term targets for the indexes remain the same: 2900 for the NASDAQ, 1340 for the S&P, and 12,700 for the Dow.

For now, investors should still focus on protecting against downside, or employ strategies that have worked under difficult market conditions, or shorting stocks for the courageous.

Tuesday's Term of the Day:

Quantitative Easing:

A Federal Reserve monetary policy used to jack up the money supply. The Fed buys securities from institutions or allows them to borrow money at next to nothing as it's a tactic that is usually put in place when interest rates are at rock-bottom.

Financial institutions leverage the "free" cash up and invest in bonds, stocks, commodities… or whatever is hot and keep the difference between interest paid and returns earned.

For example, if a bank like JPMorgan Chase borrows $10 million from the fed at 0.25%, the bank can buy $100 million in AAA bonds yielding 1%. One percent of $100 million is $1 million essentially free dollars. However, they are not limited to bonds.

The desired effect, as Ben Bernanke said, is to target asset prices. By pumping money into the system and allowing leverage, it's the pig through a python theory. You have a lot of money chasing the hot asset classes, creating wealth that's supposed to filter into and strengthen the economy.

Unfortunately, the move devalues the dollar and erodes the purchasing power of savers at the expense of debtors. Most people call it inflation and see its impact at the gas pump and grocery store checkout line.

If you have any questions you would like us to answer, or just want to say hello, shoot me an email at Rich @ wallsttools dot com.

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