Betting on the Come

George Brooks |

Craps TableBrooksie’s Daily Stock Market blog     -  an edge before the open

Wednesday, August 24, 2011     9:12 am EDT

DJIA: 11,176.76        S&P 500: 1162.35

Yesterday, I headlined, “Double Bottom Needs Powerful Surge to Confirm.”

A 322-point surge in the DJIA with 29 of 30 Dow stocks advancing  is a good start.

What’s more, 32 of the 33 Nasdaq stocks I track that have a maximum impact on the Composite Index advanced.

Let’s step back a bit here and think about this for a moment.

The reason for yesterday’s rebound was threefold.

One: the market was technically oversold, i.e. down sharply in 30 days (S&P 500: -18%, Russell 2000: -24%) and overdue for a bounce.

Two: The  European situation has been quiet, though still up in the air and dangerous.

Three: Investors are hoping Fed Chair Bernanke announces additional measures to bolster a sagging economy at the Jackson Hole, Wy. meeting of central bankers later this week. Just around the corner in early September, President Obama will also announce measures to stimulate the economy and prompt job growth.

Memories are not that short that the Street forgets what happened shortly after last year’s Jackson Hole meeting, namely a nine-month, QE2 driven  surge in stock prices (DJIA: +30%, S&P 500: +32%, Nasdaq Comp,: +37%, Russell 2000: + 48%).

No one wants to miss getting in ahead of another move like that.

We can expect more front-running of the Jackson Hole meeting.

The Street is betting that the Fed and administration   will wave some magic wand and “Presto” the economy will be off and running.

The risk here is they will be disappointed, turning a double bottom reversal to the upside into another fake out prior to a slide,  carrying the DJIA below 10,000.

Game Changer ?

I think the potential game changer here is not so much what the Fed and administration does, but what the economy “doesn’t” do – doesn’t deteriorate further.

Durable Goods came in better than expected this morning with a 4.0% increase for July vs a 1.3% decrease in June.

Jobless Claims come before the open tomorrow, GDP likewise Friday followed by Consumer Sentiment at 9:55.

Who can blame CEOs for hesitating to make key decisions and consumers to spend this summer. Investor and consumer sentiments  were  crunched by partisan politics, the S&P downgrade, discouraging economic data, and of course, more scares out of Europe.

As summer turns to fall, the so-called investment year begins leading to the Best Six Months” for investing (November 1 to May 1).

A presidential election is 14 months away. Expect all stops to be pulled by the Obama administration  to crank up the economy before then.

This double bottom has a chance, not so much by what the Fed and administration does but what the economy does without help from without.  If the economy DOES NOT nosedive, the bull market is alive again.

If it continues to slide, look for a plunge below DJIA 10,000 (S&P 500: 1100), regardless of what the Fed and administration does.

George Brooks

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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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Symbol Name Price Change % Volume
BAC.P.Y Bank of America Corporation Depositary Shares each 25.64 0.01 0.04 78,668

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