Don't Buy a Bounce - Odds Favor Drop Below DJIA 10,000

George Brooks |

Volatility Stock MarketBrooksie's Daily Stock Market blog: -an edge before the open

Friday, September 23, 2011 9:03 am EDT

DJIA: 10,733.83 S&P 500: 1129.56

Wall Street’s technicians were anxiously looking for the S&P 500 to hold at their 1120 support level. While it dropped below that level momentarily yesterday, it closed at 1129. A dip below 1120 will happen again at the open, which stands to trigger SELL signals by a host of computers programmed to automatically respond to penetration of key levels like the S&P 1120 support !!!

Where were these robots at higher prices ?

The market’s 3-day plunge has crossed the “ouch” point, but has not yet reached my “I can’t stand it anymore” point  where stocks pass from weak hands to strong hands.

I think that level will be below DJIA 10,000 (SPY). The extent of the decline depends on the series of news events that accompany the decline.

At some point, though, the markets will have fully discounted all known and perceived negatives and stop declining and start rising swiftly.

Global stocks are now in a bear market. As a result of yesterday’s plunge, the MSCI World Index  is now down more than 20%, the threshold that distinguishes a bull market from a bear market. At yesterday’s close, the S&P 500 was down 17.1% from its July 7 bull market high.

What could trigger a rebound ?

The IMF for one,  meets over the weekend and has already indicated it . Other European sources could step up to quell fears. News that there won’t be a government shutdown here in the states would help, and of course there will be statements by “visible” Wall Street/government individuals that there is nothing to worry about.

An outstanding buying opportunity is shaping up, it is a matter of stocks finding a level that discounts potential adversities. PREPARE for it !

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

Congress.

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.”

George Brooks

*National Journal

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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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