Friday, September 16, 2011 9:19 am EDT
DJIA: 11,433.18 S&P 500: 1209.11
Odds are beginning to favor a test of the August lows of DJIA 10,600 (SPY). Breaking that a drop below DJIA 10,000 is possible depending on news that accompanies the decline.
I have been looking for a great buying opportunity in coming weeks, but not at these levels. Action by the Fed next week could extend this week’s market rally, however I feel new buying is risky, instead a healthy cash reserve is justified.
Bulls point to a historically low average price/earnings ratio for the S&P 500 (SPY) in defense of their position. But these are not average times. An average includes numbers below as well as above the average.
One big thing the bulls have going for them is there is nowhere else to invest one’s money, what with money markets and short-term treasuries yielding less than 0.2 percent. A 20-year Treasury yields no more than the current inflation rate, which won’t stay at these levels for long.
So far, everything I read suggests Obama’s American Jobs Act will meet major opposition by Republicans. There is nothing wrong with that if better alternatives are quickly proposed to address the needs of our citizens and businesses. In fact, what is needed now is for Republicans to come up with a plan to goose the economy that is better (not just partisan). That would stand a better chance of passage than the President’s plan.
Shortly the 12-member SuperCommittee will begin debate on deficit reduction. If more partisan politics hinders a reasonable outcome we can expect the economy and stock market to take the hit.
CONFIDENCE in the future drives stock prices, it can be the difference between a price/earnings multiple of 12 and one of 18.
Today is Quad Witching Friday when all four stock-index options, futures, stock options and single stock options expire raising the possibility of sharp swings in either direction. While 7 of the last 8 September Quad Witch Fridays have been gainers, yesterday’s 186-point pop in the DJIA may have borrowed from today’s action.
Industrial Production saved a gloomy day for US economic indicators yesterday, posting its fourth straight gain rising 0.2 percent after a gain of 0.9 percent in July. Unfortunately, the CPI and Jobless Claims were up and the Empire State Manufacturing and Philly Fed (business activity) surveys were down.
Europe stole the spotlight for news as the European Central Bank and US Federal Bank and other central banks announced they will offer three separate, three-month loans to ensure euro-area banks will have enough US currency through year-end*
While Germany and France indicated confidence that Greece will stay in the currency union, Lauren Rosborough, senior strategist for Westpac Banking Corp. in London, does not believe the ECB and Fed offer resolves the problem, noting there are a lot of people who aren’t convinced Greece will remain part of the euro-zone.*
Support looks good at 11,000 for the Dow, 1140 for the S&P 500. The Nasdaq Composite has been stronger than the DOW and S&P with support now at 2,470.
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
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