Monday, October 3, 2011 9:16 am EDT
DJIA: 10,913.38 S&P 500: 1131.42
The market averages are close to testing the lower end of the two-month trading range at DJIA: 10,572 (S&P 500: 1114). Extreme volatility has characterized this trading range (consolidation) since Aug. 9 with six sharp swings up and down.
Right now, the bears hold a slight lead, but need additional adverse news to tip the scales and prompt a downside breakout. Resistance to a meaningful move up starts at DJIA 11,150 (S&P 500: 1155).
Odds favor a sharp rally this morning after a weak open as institutions use last week’s sell off to do some bargain hunting and aggressive traders look to scalp a few points.
Historically, stocks are cheap enough to attract serious buyers, especially, if it becomes apparent to a few big institutions that the ECONOMY WON’T SLIP INTO A RECESSION.
It’s ugly out there, you are aware of that. While it can get uglier, be ready for a surprise. Like a thief in the night, a strong rebound can develop when it is least expected.
Part of Friday’s 240-point plunge in the DJIA was due to the fact it was the end of Q3 and the last day a number of institutions could adjust quarter-end portfolio reports to hide losers. That said, there will be some buying today and in coming weeks of stocks they expect to be winners, but the names of which they would rather not broadcast to others.
A meeting in Luxembourg by key European finance ministers will weigh a possibility of a default by Greece, the impact on European banks and a boost to the rescue fund to buy more time. Financial aid must come from European governments since the European Central Bank (ECB) is limited in the amount of sovereign debt it may purchase.*
The uncertainty about how much damage a default by Greece would cause has been a drag on international markets, what else is new ? The European governments and the financial community have had more than enough time to work out a solution other than to delay the inevitable. Something has to give, and soon.
This is a big week for economic reports ! While Europe has hogged the news headlines and savages investor sentiment, the big question stateside is, will we slip (or plunge) into another recession ?
Expect some light to be shed on the answer this week as we get:
Mon. 10 am: ISM Manufacturing Index of 300 firms covering employment, production, new orders, supplier deliveries and inventories.
Mon. 10 am: Construction Spending – New spending: residential, non-residential, public
Tues. 10 am: Factory Orders: durable, non-durable
Wed. 8:15 am: ADP Employment as of 12th each month and encompasses 400,000 businesses – clue to vital “Employment Situation” report on Friday.
Wed. 10 am : ISM Non-Manufacturing report of 375 firms encompassing agriculture, mining, construction, transportation, communications, wholesale and retail trade.
Thurs. 8:30 am: Jobless Claims- Declined 37,000 for week ending Sept. 24, a welcome positive. October 1 important.
Fri. 8:30: Employment Situation: Very important as clue to progress in “jobs” situation. Also includes Unemployment rate.
Fri. 10 am: Wholesale Trade Inventories
Fri. 3 pm: Consumer Credit which can be impacted by auto sales.
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 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 and
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.”
* Bloomberg News
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