Consolidation Pattern to be Resolved Soon

George Brooks |

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

DJIA: 11,509.09     S&P 500: 1216.01 (SPY)

Expect a drop of  165 points in the DJIA within the first 30 minutes of trading. That is normal after last week’s 800-point run, which included Quad Witching Friday. Support: DJIA 11,190 ( S&P 500: 1180).

We are close to resolving the question of whether the consolidation pattern in place since early August will serve as a base for a renewal of the bull market, or as a way station en route for a further decline in stock prices and a very attractive buying opportunity.

Also factored in is more uncertainty about a default by Greece following the failure by European  Union and International Monetary Fund to decide whether Greece is eligible for a second rescue package. A failure here elevates the danger of a domino effect spreading to Spain and Italy.

The Federal Open Market Committee  meets Tuesday and is expected to outline additional measures to bolster our nation’s slowing economic recovery. While the Fed still has options, none is really expected to be a silver bullet.

That said, investors continue to be faced with a dilemma – buy stocks and risk portfolio paper losses as a result of a decline, or sit on cash that doesn’t earn a return in excess of inflation (which is usually under reported !).

Essentially, there is nowhere else to invest except stocks. Imagine being a money manager pressured by clients to “work” their money.  They have to do some buying.

Based on average price/earnings ratios, stocks are generally cheap. But, as I have emphasized, these are not “average” times, so there is risk.

Something is needed to pull investors off the sidelines, as well as prompt corporations to spend the hoard of cash in their coffers.

CONFIDENCE in the future is the key.  The current slow recovery in the economy (and unemployment rate) is a product of the severity of the Great Recession, so TIME is part of the equation, and we are already down that road a bit.

More so, is the U.S. Congress  MUST begin to function in a non-partisan way to address deficit reduction and measures to spur the economy. If  Obama’s American Jobs Act is not an answer, Republicans should propose a better solution. President Obama has demonstrated a willingness to compromise. Doing nothing is unacceptable.

With a presidential election a year away, I don’t see that happening. We must be prepared for a surprise, that suddenly Congress demonstrates it is capable of getting the job done with a minimum of  fruitless bickering.

12-member SuperCommittee timeline:*

Sept. 22: Deadline for Congressional consideration of resolution of disapproval for first $900 bn tranche

of debt limit increase.

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.”

*source: National Journal

George  Brooks


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 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:


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