Thursday, October 20, 2011 9:16 am EDT
DJIA: 11,504.62 S&P 500: 1209.88
The stock market continues to dance to the erratic beat of conflicting reports out of Europe. Just about the time it appeared safe to believe its leaders can craft a plan to avert a meltdown, they give us reason for doubt.
Status reports about Europe’s attempt to address bank and sovereign debt issues before the Group of 20/central banker summit meeting this weekend seem to change by the hour. Failure to present at the very least a near-final solution is not an option - the scramble is on – too much history, too many egos.
While U.S. stock prices fluctuated violently over the past two months in face of uncertainties related to the economy and Europe, the rally that began on October 4 suggests the Street believes Europe will succeed.
If wrong, the stock market could drop precipitously as fear of falling dominos begins to dominate investors’ thinking.
What now ?
Depends on one’s tolerance for risk.
As I see it, the 12% - twelve day surge in the S&P 500 discounts good news out of Europe, aside from a celebration rally after an announcement. Thus, buying in anticipation of good news has its risks, much of the move has already taken place. Traders may want to scalp a hit ‘n run.
A failure to produce a plan to address bank and sovereign debt issues “soon” will shush buyers to the sidelines and trigger selling, ergo a sharp drop in the markets worldwide.
Greece’s parliament meets again today to discuss austerity measures, amid rioting in the streets.
U.S. economic reports may get little attention today, though they deserve scrutiny, since economic stabilization here is critical to keep stock prices at current levels. So far, so good, but these are troubled times and enormous structural damage was done by the 2007 – 2009 recession/bear market, the worst since the 1930s .
Jobless Claims through Oct. 8 declined 6,000 – a positive. That will be followed by Existing Home Sales (expected to fall), the Philly Fed ( area business conditions) Survey, and the Leading Economic Indicators, the latter three coming at 10 o’clock.
The Fed’s “Beige Book” report covering business activity in 12 Federal Reserve Districts through September was released yesterday, but offered little new beyond modest gains in the economy. That’s good news for those fearing a plunge into a recession, bad news for those hoping for renewed strength.
Q3 earnings for the S&P 500 are projected to show increases of 17%, according to a Bloomberg News survey. Close to 70% of companies reporting through Oct.11 have beaten analyst estimates.
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.
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 andCongress.
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. 3, DJIA: 10,913, “Almost Ugly Enough for a Buying Juncture”
Oct. 4, DJIA: 10,654, “ Marching to Europe’s Drumbeat – October Opportunity Looming”
Oct. 5, DJIA: 10,808, “ News Whipsaw Becoming Problem for Bottom Watchers”
Oct. 6, DJIA: 10,939, “Rally Entering Area of Resistance. Euro-Rally a Fake out”
Oct. 7, DJIA 10,939 , “Traders’ Sell – Investors - Defer Purchase”
Oct. 10, DJIA: 11,103, “Euro-Fog Lifting – Street Looks to Q3 Earnings”
Oct. 11, DJIA: 11,433, “Easy Does It – Market Needs BIG Buying to Advance From Here”
Oct. 12, DJIA: 11,416, “Looking Beyond This Mess”
Oct. 13, DJIA: 11,518, “180-Degree Change in Expectations – No Room for Surprises”
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”
*Stock Trader’s Almanac – Get it ! Hot off the press. I have received this invaluable compendium of savvy since 1968.
For more info, go to: www.stocktradersalmanac.com
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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