Was yesterday “it” ?
Obviously, institutions are finding the discount in stock prices provided by a 7 percent decline in the market since May 2 attractive enough to do enough buying to reverse a sharp plunge yesterday, resulting in a classic “one-day” reversal where the market closes near its high for the day after a plunge on heavy volume.
Brooksie’s Daily Stock Market blog: An edge before the open.
Friday, June 24, 2011 9:24 am EDT
S&P 500: 1283.50
Nasdaq Comp.: 2686.75
Russell 2000: 802.68
Today: Mixed at the open with a positive bias. Resistance is DJIA 12,145 (S&P 500: 1293).
Support is 11,950 (S&P 500: 1272). If this is a meaningful rally, I expect the institutions to be buying aggressively on any decline in the market today. If it declines and they stay on the sidelines, the market needs more time (or lower prices) before a turn takes place.
The BIG money may be moving in anticipation that the negatives depressing stock prices will vanish and they want to be in ahead of the “news.”
The seven week plunge in the market started after the “best months for investing” (November – May)*, which actually started in late August and produced gains of 30% for the DJIA and 37% for the Nasdaq Composite.
Profit taking in May triggered the decline in the markets and accelerated as the news environment worsened.
The following issues weigh heavily on stock prices, but can reverse instantly.
Slumping economy: Yes, for the present. The Street will be watching to see if the slump gains traction, or if it is merely a “pause” prior to a renewal of a recovery which has been remarkable in light of how close global economies came to a total meltdown. May Durable Goods were ahead up 1.7% vs a decline in April of 2.7%. The final estimate of Q1 GDP is a plus 1.9% vs a plus 3.1% for Q4 of 2010.
Institutional investors are primarily focused on what these numbers are going to look like in early 2012.
European sovereign debt issues: Serious. If Greece or another country defaults, the consequences abroad and here will be significant, which is why a solution is a must – perhaps an 8-count, but not the 10-count that is most feared.
The Debt ceiling: If not raised by August 2, we have the prospect of a default on certain obligations by the U.S. government. The debt ceiling has been raised 74 times since 1962. To allow a default on anything is sheer political suicide. Won’t happen.
The Fed: Is it a eunuch now that it has expended QE2 ? No, the door is open for more injection of funds into the system IF needed or IF Congress does not raise the debt ceiling by August 2, ergo default.
Any one of these, even all, can change for the better overnight.
The big bang comes from an agreement in Congress on a plan to cut down on the relentless increase in the national debt and debt reduction. That done, the congressmen who are holding a debt limit increase hostage to a debt reduction plan will have to approve an increase.
I sense there is pressure on Congress from very powerful sources to find common ground on a debt reduction plan. I suspect it will be the foundation for such a plan, with details to be worked out in coming months, clearing the way for raising the debt ceiling.
Here’s where two negatives can become two positives. We get progress on addressing the sharp rise in the government’s national debt and we get a pass on default.
*Stock Trader’s Almamac
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