Monday, September 12, 2011 9:06 am EDT
DJIA: 10,992.13 S&P 500: 1154.23
Today, it’s all about Europe. Will Greece default ? If so, will it have a domino effect on global banks, economies and financial markets ?
Everything I have read suggests uncertainty, i.e. no one really knows, and that includes me.
There are reasons to believe the severity of the crisis can be reduced. Reportedly, Greece has made progress per reassurances by Greek prime minister George Papandreou who says, “The Choices made today have changed our prospects for the better. They will stabilize the country and remove the prevailing feeling of insecurity.”
The Group of Seven finance ministers met over the weekend and vowed to take “all necessary actions to ensure the resilience of the banking systems and financial markets.”
US Treasury Secretary Tim Geithner said, “The G7, alongside the IMF, is committed to working with them to decisively address the crisis.”*
Solutions to the Euro-zone debt crisis have been debated for years; clearly some progress has been made. When the consequences are as great as they are here, solutions tend to be worked out, not without pain, but without a total meltdown.
Odds favor that will happen this week, prompting a sharp rally in global markets.
The market needs a break above DJIA 11,740 (S&P 500: 1220) to have a shot at attacking the bull market highs of DJIA 12,928 (S&P 500: 1376). I think it can do that but needs more consolidation time or a quick downside “flush” first.
On The Home front !
This consolidation pattern between DJIA 10,600 and 11,740 (S&P 500: 1100 and 1220) will be resolved soon, so much depends on whether Congress pursues enough of President Obama’s American Jobs Act to stabilize and goose the economy, as well as on what the Fed decides to do on September 20.
Right now, it looks like the market will drift sideways to down, accelerating in a sharp drop, possibly below DJIA 10,000 (S&P 1050). A worsening in the Euro-zone debt crisis could be the trigger for a downside breakout.
I expected a decline in the market following President Obama’s address to Congress Thursday, but not as much as 303 Dow points. The Euro-zone debt crisis, headed up by new fears that Greece will default was also to blame.
While President Obama’s American Jobs Act gets good reviews by Goldman Sachs, JP Morgan Chase, and Moody’s Analytics, the consensus is that most of the ideas presented will get shot down by Congress, resulting in a further deterioration in the economy and stock market.
But the consensus is often wrong, Republicans may support enough of the plan to spark a renewal in the economy’s strength, ergo higher stock prices.
Both House Speaker John Boehner and Republican House Representative Eric Cantor have indicated they find some common ground in President Obama’s plan.
Evidence supporting the possibility that the U.S. economy will avoid a recession may be forthcoming this week. Thursday is the big day with Jobless Claims, Consumer Prices, Empire State (N.Y.) Manufacturing Survey, and Consumer Price reports all come at 8:30. Industrial Production follows at 9:15 and the Philly Fed (area activity) Survey at 10:00.
The next 4-t0-6 weeks are critical. For months, I have forecast a September/October buying opportunity. In early August, I forecasted a drop to DJIA 10,700 – 10,830 (S&P 500: 1150) with the possibly of an ultimate low of DJIA 9,680 (S&P 500: 1050). We got strong support at 10,600 as the market consolidated its drop from bull market highs of DJIA 12,928 (S&P 500: 1370). That consolidation above 10,600 must hold or a breakdown is in the cards.
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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