Thursday, September 29, 2011 9:15 am EDT
DJIA: 11,19069 S&P 500: 1175.38
What a great market for institutions with a long-term focus – just sit there and pick off stocks on pull backs, no need to scramble to build a meaningful position before other institutions run stocks up.
The market has been hanging in limbo for two months with buyers entering on six occasions between DJIA 10,600 – 11,000, but backing off (or selling) when the DJIA crosses 11,500.
This trading range will be resolved up or down in the near future.
What is needed more than ever is CONFIDENCE that problems are being addressed and solutions outlined for future implementation.
So far, we don’t have that here, or abroad. The U.S. Congress has been dysfunctional, and leading nations in Europe indecisive.
Running a close second are the global economies.
At this point, it looks more like the U.S. economy will flirt with a recession or slip slightly into one, rather than take the big plunge. Today’s Jobless Claims were encouraging as new claims declined 37,000 bringing the total to 391,000 from 428,000.
At some point, our muddling economy may take a toll on corporate earnings where it becomes more difficult for the current quarter to beat the year-ago quarter. Can we expect disappointing Q3 earnings ? How about downward revisions of Q4 earnings ?
So, yes, we can get a downside breakout from the trading range intact since early August.
How much can stocks drop ?
Below DJIA 10,000 and S&P 500: 1020.
Sound crazy, over the top ?
Not really. That would only be back to mid-2010 levels when investors’ angst was as bad as todays.
Depending on what negatives hit it when it is tumbling, I see 9,460 – 9,680 for the DJIA and 1012 – 1024 for the S&P 500 as a possibility.
Some of these negatives and uncertainties are already adjusted for by lower stock prices, so don’t get too discouraged.
On a more positive note:
We are more than two years into the official business expansion, unimpressive as it has been. Expect more of the same, but BEWARE ! At some point, the BIG money will look out and see something the average investor can’t see - an economy that is beginning to gain traction. The BIG money will begin to buy aggressively, even pay up for targeted stocks.
The market will run, and investors will wonder what is happening. After all, aren’t there a lot of negatives out there ??
TODAY: Back up again, thanks to the good Jobless numbers. However, the market needs some big buying in here and for gains to hold the highs for the day, there is no room for rally failures at this point. The bulls need to blow the DJIA our above 11,600 (S&P 500: 1220) to get some major league traction, and do so SOON !
That will mark the turn, the market can then begin to climb an all new wall of worry.
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.”
* Stock Trader’s Almanac
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