Depth of the Correction Depends on Debt Limit Progress

George Brooks |

George Brooks Stock MarketThe party didn’t last for long, as reality is setting in that this market needs to pause and catch its breath after its big run since September. It needs to decide what drum it is going to march to. I don’t like what I see. I haven’t since the end of April.

I see a near-term risk of DJIA 12,350 (S&P 500: 1320), or so. What is really needed is an agreement in Congress on a plan of attack on the nation’s National Debt spiral, and I don’t see that happening until late July, assuming the government can extend the deadline that long.

Failure to agree, i.e. default, and I see a crash in stock and bond market and a lifestyle change that none of us wants to even think about. Perhaps, I should let the fear mongering up to the press, they’re gonna love this.

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

Thursday, May 12, 2011 8:23 am EDT This post is being released an hour before the market opens, ergo I will not be able to factor in the behavior of the U.S. stock-index futures beyond 8:30.

NOTE: I will be away for a week, and expect to track the market but may not post daily. Last year my timing was short of terrific, I was away for the “Flash Crash” but still managed to get a few posts off.

DJIA: 12,630.03
S&P 500: 1342.08
Nasdaq Comp.: 2845.06
Russell 2000: 841.29

Current negatives: Q1 earnings reporting period is drawing to a close, as has the “Best Six” months for investing. Add to that, the usual financial uncertainties emerging out of Europe, and the unsettling discourse in Congress over measures designed to address the nation’s spiraling National Debt and the market has good reason to back and fill.

Fortunately, the economy has found a way to improve over the last two years with some companies doing better than others, but overall – a positive.

The crunch in commodity prices stands to be an added plus, both for the consumer and companies that have been feeling a bottom line pinch.

Without a doubt, volatility has returned to the stock market, and that can be expected to continue in face of uncertainties noted above. In short, it looks like the market is in a state of flux with mixed signals.

Some countries raising interest rates to combat inflation, but at a time commodity prices are beginning to show weakness.

It would be very difficult for the market to run far in face of the uncertainties surrounding it now. All this can lead to an outstanding buying opportunity.

Wouldn’t it be nice if Congress could base its decisions per the stated “mission” of Rotary International:

1-Is it the TRUTH ?
2-Is it FAIR to all concerned ?
3-Will it build GOODWILL and BETTER FRIENDSHIPS ?
4-Will it be BENEFICIAL to all concerned ?*

George Brooks
sensiblesleuth@gmail.com

*My wife is the Rotarian

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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