Friday, October 28, 2011 9:14 am EDT
DJIA: 12,208.55 S&P 500: 1284.59
What’s important here is not just what European leaders decided to do, but that they collectively took action. In spite of the differences in governments, financial structures, cultures and the “history” that accompanies them, leaders of these nations crafted accords that have a good chance of addressing pressing bank and sovereign debt problems.
Transfer that from the lack of confidence column to the “Confidence” column.
Yesterday I noted that the Euro-agreement paved the way for the establishment of a new trading range of DJIA 12,540 – 11,650. The S&P 500 trading range will now be 1320 – 1227.
The trading range that was in place since May 2 to October 27 now becomes “base-support” for technical corrections, an area that normally prompts investors to buy when stock prices drop down to it.
European leaders still have a lot of work to be done, but this was a good start.
The increase in the bailout fund (European Financial Stability Facility, or EFSF) to 1 trillion euros ($1.4 trillion) must be funded and Europe is looking to outside sources for that, including the International Monetary Fund, or IMF, China, the BRIC nations (Brazil, Russia, India, China, South Africa), and Japan. This introduces the “What’s in it for me” factor. China would want more clout in international financial matters, for one.
The Group of 20 will meet next week to discuss funding.
Expect the shorts and doomsters to marshal their forces to criticize decisions made at the summit and resurrect the aura of fear that pummeled stock prices on the six occasions when they tried to break out of the August – October trading range.
TODAY: Profit taking before the weekend and some second thoughts about the staying power of agreements reached at the summit talks this week will trigger some selling. But between here and near-term support of DJIA 11,950 (S&P 500: 1255) there will be buyers who see Europe’s decisions as a sign that problems are finally being addressed.
There WILL be snags along the way, possibly starting with concern about funding the EFSF next week as the Group of 20 meets.
On the home front, Q# GDP, consumer spending for September, Durable Goods (ex transportation) were better than expected. October Consumer Sentiment will be reported at 9:55 today. It has been down sharply over the last six months; I’m not expecting much this time around.
Bear in mind, we have entered the “Best Six Months”* for owning stocks, a stretch that has a great record for accuracy and investment gains.
The SuperCommittee has been lost in the shuffle, upstaged by international financial worries and the state of our economy here at home. Nevertheless, it will raise its ugly head to remind us whether our government is, or is not, dysfunctional. For the time being, coverage of developments there is not permitted.
12-member SuperCommittee timeline:**
Oct. 1- Dec. 31: Both houses of Congress must vote on a Balanced Budget Amendment.
Oct.: 14: Deadline for House and Senate Standing Committees to submit recommendations.
Nov. 23: Deadline for both houses to vote on a plan with a 10-year deficit reduction goal of $1.5 trillion Dec. 2: Deadline for committee to submit report and legislative language to President Obama and Congress.
Dec. 23: Deadline for both houses to vote on committee bill.
Jan. 15, 2012: Date that the “trigger” leading to $1.2 trillion of future spending cuts goes into effect if the committee’s legislation has not been enacted.
Feb. 2012: Approximate time when first $900 bn of debt ceiling runs out.
Feb./Mar.2012: Deadline for Congress to consider a resolution of disapproval for the second tranche ($1.2 – $1.5 trillion) of debt limit increase.
Fall/Winter 2012: When additional $2.1 - $2.4 trillion of borrowing authority from this law runs out.
Jan.2, 2013: OMB orders sequestrations for defense and non-defense categories of spending necessary to meet spending cuts required by the “trigger.”
Recent blog headlines:
Oct. 14, DJIA: 11,478, “Europe Still the Key – Q3 Earnings Run a Close Second”
Oct. 17, DJIA: 11,644, “Snags En Route to Euro-Solution to be Expected”
Oct. 18, DJIA: 11,392, “Test of the October 4 Rally’s Strength”
Oct. 19, DJIA: 11,577, “Best Six Months Looms, But Volatility to Continue”
Oct. 20, DJIA: 11,504, “All Eyes on Euro-Summit this Weekend”
Oct. 21, DJIA 11,541, “DJIA 12,000 “IF” the Europeans Can Get It Right”
Oct. 24, DJIA 11,808, “Euro-Solution Announcement After Wednesday’s Meeting”
Oct. 25, DJIA 11,913, “Short-Term Euro-Solution Doesn’t Cut It”
Oct. 26, DJIA 11,706, “Ball’s in Europe’s Court”
*Stock Trader’s Almanac
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