Brooksie’s Daily Stock Market blog – an edge before the open
Monday, October 10, 2011 9:18 am EDT
DJIA: 11,103.12 S&P 500 1155.46
OK, you checked the morning news to discover the fog is lifting from euro-zone debt crisis and that respected Wall Street sources think the U.S. can avoid a recession, after all.
Well now, maybe last week’s 450-point surge in the DJIA makes sense.
At a joint press conference in Berlin, Germany’s Chancellor Angela Merkel and France’s President Nicolas Sarkozy said they would announce plans to address Greece’s financial woes and the “structural defects” of the 17-nation euro-zone by November 3.
Bloomberg News reports that Goldman Sachs and Macroeconomic Advisors are raising forecasts for Q3 GDP growth to 2.5% from 2.0%. What’s more, Alan Sinai, Decision Economics, says “The U.S. economy doesn’t look like it’s double dipping at all.” That said, even Eagles/Phillies fans can start feeling better.
Upbeat conclusions about the economy were reinforced last week by better-than-expected ISM Manufacturing, Construction Spending, Factory Orders and jobs reports.
While the market rebounded impressively last week, it did so into an area that produced a lot of selling during the last two months. Resistance to a further upside move will be encountered between DJIA 11,280 and 11,700 (S&P 500: 1175 and 1220).
The BIG money and other institutions will need to crank up some major league volume to break through these areas.
Areas that have provided resistance for the market in the past lose their significance when conditions change, which it appears they have.
A new consideration is emerging – Q3 earnings and by some accounts they won’t read as well as in Q2 and Q1 which increased 19% and 20% respectively. A Bloomberg News survey indicates S&P 500 earnings growth (excluding financials) will slow to 14% in Q3, 12% in Q4 and 9% in Q1 of 2012.
TODAY: While the weight of two major negatives overhanging the market ( Europe and a U.S. recession) has lifted, I don’t see this as a “bet the ranch” situation. It has improved.
However, do not rule out a second bottom test of the October 4 lows. Don’t rule out new lows below DJIA 10,360 (S&P 500:1114), though odds of that are less with the news out of Europe over the weekend.
This week won’t offer much in terms of economic reports until Thursday’s Jobless Claims and Friday’s Retail Sales and Consumer Sentiment.
The SuperCommittee has been lost in the shuffle, upstaged by international financial worries and the state of our economy here at home. Nevertheless, it will raise its ugly head to remind us whether our government is, or is not, dysfunctional.
12-member SuperCommittee timeline:*
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.”
Recent blog headlines:
Sept. 16, DJIA: 11,433 “Easy Does It ! Test of August Lows Possible”
Sept. 19, DJIA: 11,509 “Consolidation Pattern to be Resolved Soon”
Sept. 20, DJIA: 11,401 “Beware – Breakout Fake out in the Offing”
Sept. 20, DJIA: 11,401 “Breakout – a Fake out in the Offing ?”
Sept. 21, DJIA: 11,408 “Muddied Waters – News Prompted Breakout a Potential Fakeout”
Sept. 22, DJIA: 11,124 “Opportunity to Follow Wrenching Probe for a Bottom – Dow 9,680 ?”
Sept. 23, DJIA: 10,733 “Don’t Buy a Bounce Fueled By Reassuring Statements”
Sept. 26, DJIA: 10,771 “Stock Market Bottom Here – Premature”
Sept. 27, DJIA: 11,043 “Market Bottom Needs More Time”
Sept. 28, DJIA: 11,180 “Getting Close to a Breakout (UP or Down) From Two-Month Trading Range”
Sept. 29, DJIA: 11,010, “Approaching Consolidation Crossroads – Up ? or Down ?”
Sept. 30, DJIA: 11,153, “Bulls Need a Big Day, or Else”
Oct. 3, DJIA: 10,913, “Almost Ugly Enough for a Buying Juncture”
Oct. 4, DJIA: 10,654, “ Marching to Europe’s Drumbeat – October Opportunity Looming”
Oct. 5, DJIA: 10,808, “ News Whipsaw Becoming Problem for Bottom Watchers”
Oct. 6, DJIA 10,939 , “ Traders’ Sell – Investors – Defer Purchase”
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.