Best Six Months Looms - But Volatility to Continue

George Brooks |

Stock Market Gainers LosersInvestors worldwide are looking to the summit meeting of the Group of 20 ministers and central bankers in Brussels Sunday for solutions to the European bank and sovereign debt issue.  That’s a good reason to be a little wary of chasing a surging stock market, IF that precedes it.  While German Chancellor Angela Merkel recently warned against expecting too much too soon, she did say yesterday an important step, not the final one, will be taken.

We can live with that.

   If we get definitive news, a major step toward resolving liquidity problems abroad and the stock market runs up in anticipation of it, traders may sell into the news Monday.

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

Wednesday, October 19, 2011    9: 18 am EDT

DJIA: 11,577.05     S&P 500: 1225.38

The stock market has been locked in a highly volatile trading range for more than two months and is now trying to break out on the upside.  A lot of selling has already taken place, so “overhead supply” should be minimal if the bulls want to run with the ball.

At this point in time, it does NOT look like the U.S. will sink into a recession.

Q3 earnings are coming in, not all beating expectations.

The bottom line of all this is there are a lot of balls up in the air, ergo uncertainty.

A big move up like the one that started Oct. 4 usually needs a correction, but the market failed in an attempt to sell off Monday and at the open yesterday and in fact rallied strongly.

   Looks like buyers are scooping up stocks on pullbacks, even paying up.

This looks like the “If a market should” syndrome where it fails to do what it should do, therefore it is headed in the opposite direction.  Or, to put it another way, the “beach ball” syndrome where you try to submerge one of those big beach balls, but it keeps popping back up.

   It’s hard to say we are there yet. We are approaching the “Best Six Months"  for owning stocks (Nov.1 to May 1), a stretch that historically has produced superior gains vs. the six months (May – Nov.)*

   AND, unless we are on the threshold of a recession, contagion in Europe, or an adversity yet to crop up, we are looking at opportunity. 

With Treasuries, CDs, money markets yielding close to zero, money managers have little choice but to buy stocks, and especially if they are historically cheap.

   The problem here over the last six months has been “meltdown” in Europe and the potential for a domino effect.  That can still happen, but progress is being made to head it off.

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 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:

Sept. 22,  DJIA: 11,124  “Opportunity to Follow Wrenching Probe for a Bottom – Dow 9,680 ?”

Sept. 23,  DJIA: 10,733  “Don’t Buy a Bounce Fueled By Reassuring Statements”

Sept. 26,  DJIA: 10,771  “Stock Market Bottom Here – Premature”

Sept. 27, DJIA: 11,043   “Market Bottom Needs More Time”

Sept. 28, DJIA: 11,180  “Getting Close to a Breakout (UP or Down) From Two-Month Trading Range”

Sept. 29, DJIA: 11,010,  “Approaching Consolidation Crossroads – Up ? or Down ?”

Sept. 30, DJIA: 11,153,  “Bulls Need a Big Day, or Else”

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. 18, DJIA: 11,644,  “Snags En Route to Euro-Solution to be Expected”

 

George  Brooks

*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

**National Journal

…………………………………………………………………………………………………………

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.

 

 

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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