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Big Buying Opportunity Possibly July 29 or August 1 – Trading Opportunities in Interim

Stock prices must find a level where known and potential negatives are adequately discounted.That will involve a probing process, with some sharp rallies that look like the big turn.One of those

Stock prices must find a level where known and potential negatives are adequately discounted.

That will involve a probing process, with some sharp rallies that look like the big turn.

One of those rallies could come this week, but overhead supply is formidable starting at DJIA 12,3375 ( S&P 500: 1325). Nimble traders only.

Brooksie’s Daily Stock Market blog: An edge before the open.

Monday, June 6, 2011 9:03 am EDT

DJIA: 12,151.26
S&P 500: 1300.16
Nasdaq Comp.: 2732.78
Russell 2000: 808.13

Six weeks ago, the Dow Jones Industrial Average soared 800 points in two weeks as one after another corporation reported Q2 earnings that beat Street estimates.

The market topped out on May 2 and it has been all downhill since. It looks like the BIG money used investor euphoria to sell, lending credence to the adage, “Sell in May and go away.”

May 1 did mark the end of the “Best Six Months” for investing in stocks. Normally this seasonal phenom runs between November 1 and May 1. This time around it ran 8 months, starting in late August on the heels of the Fed’s launching of QE2, following a summer slump in the economy.

Between late August 2010 and Ma2, 2011, the DJIA rose 30%, S&P 500 rose 32%, Nasdaq Comp. +46% and Russell 2000 +47%.

It stands to reason that after that kind of surge in only 8 months, there would be some serious profit taking.

The economy is once again slowing down, and investors are once again worrying about sovereign debt issues abroad

Last week was a bummer for economic reports with disappointing numbers covering consumer confidence, employment, production, and home sales. The only bright spot was the ISM nonmanufacturing (service) report for May, which came in higher than expected.

This week is light on reports. The FOMC Beige Book report comes at 2 p.m. Wednesday. Issued two weeks before the FOMC policy meeting, the report may shed some timely light on the condition of the economy and any plans it may have to counter the current weakness.

More and more, though, the news headlines will feature unnerving speculation about the consequences if Congress does not raise the nation’s debt limit by the drop-dead deadline August 2.

Some in the press (TV and print) can be expected to sensationalize the issue, ramping up fears of a government default on certain obligations.

In my opinion, an agreement will be reached over the July 30 – 31weekend, or on Monday, August 1.

The BIG money may anticipate an accord in advance and buy, running stock prices up in advance.

Maybe not ! In face of orchestrated fears, the market may plunge prior the August 2 deadline with a low coming in the area of DJIA 10,700 – 10,830 (S&P 500: 1150).

I would expect that low to be tested and possibly broken by one more slide into a major buying opportunity in the fall.

This is how I see it. Much can happen in the interim.

There will be technical rallies, responding to statements from Washington that an agreement on the debt ceiling is imminent, or that the softness in the economy is temporary, that it has merely been a reaction to higher oil and commodity prices, a record number of devastating tornados, and Japan’s tsunami/nuclear tragedy.

I think it all has to play out – be given time. The market has to find a comfort level where known and anticipated negatives are adequately discounted.

I see the potential for a drop as low as DJIA 10,700 – 10,830 (S&P 500: 1150, much depends on how much anxiety is orchestrated by the press, especially over the consequences of Congress NOT approving a rise in the debt level by the August 2 deadline.

George Brooks
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