Again - It's All About Europe

George Brooks  |

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

Thursday, November 3, 2011       9:16 am EDT

DJIA: 11,836.04     S&P 500:  1237.90

Let’s call yesterday’s rebound  an adjustment to an abrupt, emotional sell off.  While the bounce  did not occur on heavy volume, stocks held close to the highs for the day, a good sign.

The U.S, stock index futures rebounded sharply from a big deficit at 5 a.m. this morning to post gains before the open, suggesting a positive response to Europe’s reaction to  a referendum in Greece on the bailout plan.

Germany’s Chancellor Angela Merkel and French President Nicolas Sarkozy announced early this morning that they would withhold 8 billion euros ($11 billion) of aid for Greece and warned Greece all European aid is in jeopardy if iy votes against the bailout package agreed on last week.

Greece could end up in  bankruptcy, sending shock waves across all economies.  Other nations would be at risk, banks would be impacted globally. Dominos could fall.

That has been the risk all along.

With so much at stake, the question is raised, will the major powers step in to halt contagion? This situation changes hourly.  The reports out of Europe I have studied since 5:00 a.m. today will likely change before you read this.

Crises breed opportunity, but jumping in has its risks. These are not “In for a dime, in for a dollar” type situations.   Partial positions with diversity as to time and risk are more desirable.  Never, ever forget   that the math can work against you.  A 50% loss takes a “double” to get back to square one.

Looks like the Fed is ready for Quantative Easing , or QE number 3, if a bump-along economic recovery looks like it will begin to sink into recession.

So far, economic indicators this week indicate a continued slow paced recovery.  The most recent Jobless Claims did drop 9,000 claims and the ISM Non-Manufacturing report (10:00 A.m.) are expected to notch up a bit.

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CONCLUSION: Much as I appreciate the severity of the risks globally, I give an edge to the positive. Volatility will continue on the heels of changing news, and the correction that started four days ago could take the DJIA below 11.500 (S&P 500: 120) before running out of steam.

The bulls have an edge here, and have since early October. A lot of cash must be put to work, all the money managers need is assurance that Europe won’t melt down. It looks like they are doing their best to avoid it.

I think the movie now showing called Margin Call is worth seeing. Poor name for the message it conveys. In fact, you may  come away a little puzzled. That’s when it dawns on you, it was cleverly done. A sleeper.

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”

Oct. 31  DJIA 12,208,    “Buyers on Dips. Euro-Deal to Hit Some Snags

“Doomsters and Shorts Out in Force”

Nov. 2 DJIA: 11,637,     “Risk-Taker’s Buy Shaping Up”

George  Brooks


The writer of Brooksie’s Daily Stock Market blog, 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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