Monday, November 28, 2011 9:16 am EST
DJIA: 11,231.78 S&P 500: 1158.67
FINALLY! Europe has sprung into action, realizing what the world feared, that the European Union, or EU, was at risk of dissolving if talk wasn’t backed up by concrete steps to stabilize its banking system, address sovereign debt woes, and restore investor confidence so its weaker nations could raise needed financing without paying crippling interest rates.
News over the weekend that Central Banks, the European Central Bank [ECB], International Monetary Fund [IMF], and European Financial Stability Fund [EFSF], will be employed to confront the crisis and restore stability in face of soaring interest rates has prompted a strong rebound in stock prices today.
The global impact of the dissolution of the European Union would be hard to quantify, but our stock market was plunging, down 8.5% in nine days and gaining momentum.
What can move things along ? Maybe it took the realization that the EU’s strongest nation, Germany, wasn’t immune to infection by the escalating crisis when it failed to get bids for one-third of its 10-year bonds last week.
This kind of news was what I was looking for in my “Darkness Before the Dawn” blog Wednesday when I alerted traders to an opportunity with a projected drop in the DJIA to 11,300 (S&P 500: 1165). “It would have to be a big flush,” I wrote, “accompanied by good news (or hint thereof) to generate a playable rally.” The DJIA dropped 247, the S&P 27 points, but no news out of Europe and the market dropped further in the final minutes of the shortened trading day.
Did traders and too many investment professionals include Friday in their long weekend and get caught napping ? Usually the market anticipates NEWS, moving in before announcements.
European finance ministers will meet this week with a “summit” meeting scheduled for December 9. Solutions are needed for the latter, or the prospects for saving the EU darken. This situation is, of course, all highly complicated. If there is a common denominator to a solution it is politics – how do you get 17 nations on the same page when it comes to fiscal and lifestyle matters. Too much history? Perhaps, but saving the EU is really worth the effort. The cost of dissolution is far greater than saving it.
We have a big week for economic reports. The significance of the reports is that they confirm our economy is NOT slipping into a recession, but ever so slightly gaining traction in a recovery that follows the worst recession since the 1930s. Worth noting is the fact we are seeing this recovery without any help from the housing market.
First of all, the National Retail Federation reports that retail sales over the Thanksgiving weekend increased 16% over a year ago, and today is Cyber Monday where they go online to spend more.
Today we get New Home Sales at 10:00am. Tomorrow the S&P Case-Shiller Home Price Index comes at 9:00 am, Consumer Confidence and the FHFA House Price Index at 10. Wednesday it’s the ADP Employment Report at 8:15, Chicago PMI (regional business conditions) at 9:45, and Pending Home Sales Index at 10. Thursday its Jobless Claims at 8:30, the ISM Manufacturing Index and Construction Spending at 10, and Friday the Employment Situation report comes at 8:30.
CONCLUSION: We are getting the news we needed to stabilize global markets. Is it too late ? Don’t know, but odds favor that it is just in the nick of time.
With the fear of international contagion in financial and investment markets lessened, the DJIA has a chance to rebound to 11,750 (S&P 500: 1214).
Super Committee: While the committee failed, I am keeping this up FYI, since it will continue to get press coverage.
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. They blew it !
Dec. 23: Deadline for both houses to vote on committee bill – There’s none to vote on.
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:
Oct. 21, DJIA 11,541, “DJIA 12,000 “IF” the Europeans Can Get It Right”
Oct. 24, DJIA 11,808, “Euro-Solution Announcement After Wednesday’s Meeting”
Oct. 25, DJIA 11,913, “Short-Term Euro-Solution Doesn’t Cut It”
Oct. 26, DJIA 11,706, “Ball’s in Europe’s Court”
Oct. 31 DJIA 12,208, “Buyers on Dips. Euro-Deal to Hit Some Snags
“Doomsters and Shorts Out in Force”
Nov. 2 DJIA: 11,637, “Risk-Taker’s Buy Shaping Up”
Nov.3 DJIA: 11,836, “Again – It’s All About Europe”
Nov.4 DJIA: 12,044, “Easy Does It ! Traders to Take Some Profits”
Nov. 7 DJIA: 11,983, “SuperCommittee Will Soon Take Center Stage”
Nov. 8 DJIA: 12,068, “Stock Market Hanging Tough – Would Love to Run…. but…”
Nov. 9 DJIA: 12,170 “Italy’s Turn to Crunch Prices, But the SuperCommittee is in the On-Deck Circle”
Nov. 10, DJIA: 11,780, “ OK Greece and Italy – Cut the Crap – Decision Time !”
Nov. 11, DJIA: 11,893, “Potential for an Upside Breakout Looms, Absent New Negatives”
Nov. 14, DJIA: 12,053, “SuperCommittee and Economy Taking Center Stage”
Nov. 15, DJIA: 12,078, “European Outlook Tentative – U.S. Outlook Picking Up”
Nov. 16, DJIA: 12,096, “Europe – Surprise Us for a Change – Get the Job Done !”
Nov. 17, DJIA: 11,905, “Time for European Leaders to Avert Contagion – European Central Bank to the Rescue ?”
Nov. 18, DJIA: 11,770, “Stock Market a Coiling Spring ?”
Nov. 21, DJIA: 11,796, “Occupy Washington”
Nov. 22, DJIA: 11,547, “Uncertainty Rules – But Trader’s Opportunity Looms Wednesday Morning Early”
Nov. 23, DJIA: 11.493, “Darkness Before the Dawn ? Germany Starting to Feel the Heat”
Nov.25, DJIA : 11,257, “Europe, Where Art Thou ?”
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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