George Brooks: Guts to Roll the Dice? Bet on a Compromise - Otherwise - Cool It!

George Brooks |

Brooksie’s Daily Stock Market blog: An edge before the open.

Thursday, April 7, 2011 9:23 am EDT

DJIA: 12,426.75
S&P 500: 1335.54
Nasdaq Comp.: 2799.82
Russell 2000: 854.17

Obviously, the news of the day is shutdown or no shutdown of the government. So far the market is telling us it expects a compromise of sorts. That said, a shutdown would come as a surprise and most likely hammer stock prices temporarily on the order of 2-to-3 percent (250 – 350 DJIA points).

The hit would come on Monday and Tuesday unless there is an extension.



Of equal concern, or confusion, is the question of Fed policy, ergo interest rates. While some Fed hawks have indicated they are concerned about commodity inflation, others favored “accommodation” in Fed policy beyond 2011, per the release of the minutes of Tuesday’s FOMC meeting. China raised interest rates for the fourth time Tuesday and the European Central Bank announced today it is raising its benchmark rate to 1.25 percent from a record low of 1.00 percent.

We are on the verge of the release of Q1 earnings reports, and I suspect that should get credit for the amount of stability we have seen in the market so far in face of a host of negatives here and abroad.

I think the BIG money will use good, even very good, earnings reports to sell. While the market has ignored bad news and uncertainty to-date, that can change quickly. The prudent thing now is to raise a cash reserve, how much depends on a person’s tolerance for risk.

The BIG money only has to defer buying to enable a correction.

Today: Mixed. Could get a rally, prompted by fast-money betting on a budget compromise tonight.
Technically, I am uneasy. It’s not the news that woke me at 3 am, it’s hard to finger. I am not afraid to play, I am inclined to sit close to the exit, and with some cash, just in case.

George Brooks
sensiblesleuth@gmail.com

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