Emotional Extremes to Provide Great Trading Opportunities for Skilled

George Brooks |

S&P 500, Standard and Poor's 500Brooksie's Daily Stock Market blog

DJIA: 11,444.61     S&P 500: 1194.38

My initial downside target of  DJIA 10,700 – 10,830 (S&P 500 1150) is a good bet near-term, possibly today or tomorrow. Breaking that, I see DJIA 9,680  (S&P 5001050). That is not a given. Most likely we would see an attempt to
stabilize in the interim.

Obviously, S&P’s Friday downgrade of the U.S. credit rating (first ever) could not  have come at a worse time  here and abroad.  S&P should have waited for the agreement reached by Congress last week to play out at least until year-end.

Even after acknowledging a $2trillion simple math error in their rationale for the downgrade, S&P
decided to go ahead.

Unless Moody’s and Fitch follow S&P’s downgrade of  U.S. credit rating, I find S&P’s downgrade inexcusably irresponsible, even suspicious. 

The timing may be  injurious to the world’s global sovereign debt problems.

The Group of Seven (G-7)  has announced it will “take all necessary measures to support financial stability and growth,” and  I believe the same will  be true of our Federal Reserve.

We are at risk now of some serious damage. Stock prices are a matter of opinion which in uncertain times is mostly based on CONFIDENCE, or lack thereof.  Just look at the enormous range (high to low) in price/earnings ratios.

Bulls will plead that stocks are cheap based on average price/earnings ratios. Well, these are not “average” times ! When the norm unravels, a stock’s price is determined by money flows “in” and money flows “out,” which are mostly fueled by emotion.

I expect several sharp downdrafts, climactic sell offs. How low depends on what new negatives hit the market at junctions where prices are trying to stabilize prior to a rebound.

AT SOME POINT, THE STOCK MAKET WILL FIND A LEVEL THAT DISCOUNTS KNOWN AND PERCEIVED NEGATIVES; AT THAT POINT, IT WILL TURN UP.

Remember, the BIG money is watching this very closely for an opportunity to buy.

John Chambers, head of S&P’s  sovereign debt ratings told CNN Saturday that political brinkmanship over the debt ceiling was the key issue in its decision to downgrade the U.S. credit rating.

“The first thing it could have done is  to have raised the debt ceiling in a timely manner so that much of this debate had been avoided to begin with, as it had done 60-70 times since 1960 without that much debate,” Chambers said, adding it will have a long-term impact.

 Thank you, Tea Party !

The deliberate, unyielding obstruction by the Tea Party mentality is the primary reason I am bearish.  No administration can address a nation’s problems with this kind of obstruction.

Seems like the United States government is under siege from within, as well as without.

The question that needs to be addressed right now is, do the adversaries of this administration really want another Great Recession and CRASH ?  Would it not be a pyrrhic  victory to obstruct the Obama administration at every turn leading to the defeat President Obama and end up with an even worse mess that he inherited from President Bush ?

What we need now:

For reasonable Republicans and Democrats to unite, tell extremists of both parties to take a hike and jointly  pursue  policies that benefit all Americans.

Without that, the possibility of a crash is back on the  table.

We can’t expect much help this week from the economic indicators, since the schedule is light - Tuesday: Productivity and costs, FOMC meeting; Wednesday: Treasury Budget; Thursday: Int’l Trade, Jobless Claims; Friday: Retail Sales, Consumer Sentiment.

We have to watch the Fed.  It may be forced to take action in face of a slowing economy and S&P’s
boneheaded decision.

Our nation can address huge challenges, but not divided.  Our system of government can work, but not if it is “gamed” and gutted from within.

George Brooks

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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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