Europe Still the Key - Q3 Earnings Run a Close Second

George Brooks |

   A correction to this 8-day, 9% surge would be normal with initial support at DJIA 11,200 (S&P 500: 1150).  Without a disappointment on the European front, I don’t expect that much of a correction to happen.

Really, there is nowhere else to invest your money and stand to get a return. Fed policy and willing Treasury buyers seeking a safe refuge have interest rates at next to zero.

This is a very strong argument for buying stocks and for the lows put in on October 4 to hold when tested again, a test that may only result in a drop to DJIA 11,000 (S&P 500: 1150).

ALL THIS ASSUMING THE U.S. AND WORLD DON’T SUDDENLY SINK INTO RECESSION , AND EUROPE’S EFFORTS TO SAVE ITS BANKING SYSTEM AND ADDRESS ITS SOVEREIGN DEBT WOES.

At present, it looks like the bullet will be dodged on both accounts.  

By historical yardsticks, stocks are attractive. We are approaching the “Best Six Months” to own stocks (Nov. 1 to May 1), and this is a pre-presidential election year sporting no downers in 72 years.*

If the Fed policy of low interest rates was fostering aggressive borrowing  to fund business expansion, the low rates would have merit.

What is next to devastating to the economy is the absence of a source of safe, meaningful, if only nominal, income for people who can’t afford the risk of investing in equities. This was once a source of income that paid bills. 

Income on fixed investments is also critical to the survival of many pension funds and insurance policies. Ironically, when interest rates finally turn up, individual and institutional holders of long-term securities will get slaughtered by the ensuing plunge in bond prices.

I force myself to read the bearish point of view, but not at bedtime. I see, Jim Shepherd, “The Shepherd Investment Strategist,” spent a bundle on a mailing, predicting the “greatest stock buying opportunity is still coming, but only after the coming crash !”

I also read A.Gary Shilling’s, “INSIGHT.”  Author of, “The Age of Deleveraging,” Shilling was one of the first to anticipate the 2007-2009 implosion in the financial community. His October issue headlines, “Deflation Has Arrived.”

Over the last four years, the bulls and the bears have shared the spotlight, taking charge when the prevailing  sentiment  dictated otherwise.

We are 32 months into the bull market that started in early March 2009 and 28 months into the economic recovery that started in June 2009.  Both are within a hair of crossing into bear/recession territory.

Bears warn this October surge is a bear market rally to be followed by at least one more leg down to new lows.

Bulls aren’t as cocky, just too many balls up in the air, any one of which could come crashing down.

But out there is a meaningful recovery, and that’s what the BIG money is looking for. It saw it in March 2009 when it began loading up on stocks below the Dow 7,000  level, prior to surges of DJIA: 101%, S&P 500: 105%, Nasdaq Comp,: 128%, Russell 2000: 151%.

Odds favor that they are once again digging in for a sizable up move in stock prices.

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. 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,  “Rally Entering Area of Resistance.  Euro-Rally a Fake out”

Oct. 7,    DJIA 10,939 ,  “ Traders’ Sell – Investors - Defer Purchase”

Oct. 10,  DJIA: 11,103,  “Euro-Fog Lifting – Street Looks to Q3 Earnings”

Oct. 11,  DJIA: 11,433,  “Easy Does It – Market Needs BIG Buying to Advance From Here”

Oct. 12, DJIA:  11,416,  “Looking Beyond This Mess”

Oct. 13, DJIA: 11,518,   “180-Degree Change in Expectations – No Room for Surprises”

 

George  Brooks

*Stock Trader’s Almanac – Get it ! Hot off the press.  I have received this invaluable compendium of savvy since 1968.

For more info, go to: www.stocktradersalmanac.com

**National Journal

…………………………………………………………………………………………………………

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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