Tuesday, January 3, 2012 9:08 am ET
DJIA: 12,224.30 S&P 500: 1258.48
Technicians have carped over the inability of the S&P 500 to decisively break above its 200-day moving average of 1260, an oft used calculation for smoothing out fluctuations in the market, thus providing a benchmark for whether the market is under, or over performing.
Since the S&P broke down through the 200-day line in late July, the market has been unable to sustain a rebound back up through the 200-day line, failing in late October, early November and twice in December.
It will do that this morning with a powerful open, as well as break above December’s intraday high of 1269.
Will it be able to sustain this surge ?
On the plus side, in spite of enormous European-driven volatility, the stock market has been able to bounce back on 7 occasions, most recently form the S&P 1202 level. It has simply met resistance when it moves up to its 200-day line, probably because many of Wall Street’s computers are programmed to defer purchase, even do some selling at that level.
Then too, where else can money managers put their client’s money ?
Expect the press to begin speculation about the January 15 “Trigger” date when automatic spending cuts of $1.2 trillion are highlighted as a result of the SuperCommittee’s inability (or unwillingness) to decide on deficit reduction measures. This is likely just another political football for the presidential election campaigning, since Congress has ways to change the rules before whatever cuts become effective in January 2013.
I doubt there will be any changes in the uncertainties out of Europe, but this week’s economic numbers will shed light on how much is changing here.
Most likely Europe will be in a recession for most of the year, but the U.S. economy is gaining traction and that cannot be ignored.
Key economic reports scheduled for release this week may demonstrate how much.
ISM Manufacturing Index (10 a.m.) A survey of 300 manufacturers encompassing production, new orders, backlogs, inventories, employment, supplier deliveries, exports, imports, prices. November was up 1.2 points to 52.7 (greater than 50 = growth).
US Construction Spending (10 a.m.) New construction residential, non-residential, public prospects.
Was up 0.8 in Oct., led by a 3.5% gain in private residential.
Motor Vehicle Sales: ( a.m.) Includes domestic and foreign. Rose 2.8% in Nov. following 1.2% Oct.
US Factory Orders: (10 a.m.) New orders durable and non durables. Fell 0.4% in Oct.
ADP Employment (8:15 a.m.) Includes private payrolls only (no government) through the 12th of each month. Usually, but not always, an early indication for Friday’s Employment Situation report.
Jobless Claims (8:30 a.m.) reported weekly, it includes new claims for unemployment insurance for the first time. Claims rebounded 15,000 in the week ended Dec 24, but was not alarming since the four-week average is declining.
ISM Non-Manufacturing report (10 a.m.)Surveys 375 firms in cross section of U.S. including: agriculture, mining, construction, transportation, communications, wholesale and retail trade. Slipped 0.9% to 52 in November. Readings above 50 suggest growth.
Employment Situation (8:30 a.m.) Includes the “unemployment” report, average workweek, and average hours worked. Jumped 120,000 in November and is projected to jump by 150,000 in Friday’s report according to 62 economists surveyed by Bloomberg.
Conclusion: A strong market today suggests the possibility of a strong market in January, leading to a January Barometer signal for a good overall performance for the market this year.*
CONCLUSION: Good year to make money. Again timing will be key, since there are plenty of issues to throw sand in the gears. It’s a presidential election year. Traditionally, these years are good, but the best have been “pre”- presidential election years.* With the S&P 500 flat last year, the Nasdaq Composite and Russell 2000 down and only the staid DJIA up a mere 5.6%, that begs the question what can we expect in 2012 ?
Be careful here ! Do not let political preferences taint your thinking. If you are hoping President Obama will be beaten in November, you may be rooting for a recession to help oust him and be reluctant to buy stocks. Last year may have been a coiling spring that uncoils this year as huge amounts of sideline money comes into play under the assumption that a catharsis in Europe will clear the air, Mid-East wars be less of a drain, the U.S. economy will gain traction and Congress will scramble to be less obstructive as it postures to appear to be capable of addressing needs rather than narrow political agendas.
The European Union (EU) is an economic and political union of 27 sovereign member states with origins going back to 1958, but which was officially established by the Maastricht Treaty in 1993. Its goals are a free movement of goods, services, capital and people differing in life style, language, economies, geography, religion, politics and history.
Its 27 Members include: Austria, Belgium Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. The EU comprises a population exceeding 500 million people a GDP exceeding 16.2 billion USD, some 20% of the world’s GDP.
Important components of the EU include: European Parliament, European Commission, Council of European Union, European Council Court of Justice and European Union, and the European Central Bank.
The euro area (eurozone) is an economic and monetary union (EMU) of 17 member nations that use the “euro” as their common currency and sole legal tender. Its members include: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain.
While the goal of single currency originated with the European Economic Community (EEC) in 1969, it was not until 1993 that members were legally bound to start the monetary union no later than January 1, 1999. At that point, the euro was launched after which it was an “accounting” currency until January 1, 2002 when euro notes and coins were issued and national currencies phased out in the eurozone.
The European Central Bank (ECB) is the central bank for the eurozone. Governed by its president, Mario Draghi, and a board of the heads of national central banks, the ECB’s primary responsibility is to maintain the euro’s purchasing power and price stability within the eurozone.
The Eurosystem is the monetary authority of the eurozone comprised of the ECB and the central banks of its member states, which are charged with applying the ECB’s policy.
The European Commission, comprised of one commissioner from each of the 27 member states, represents the interests of the EU, drafts proposals for laws, and manages the day-to-day business and disbursement of funds.
European Banking Authority (EBA): Established on Jan. 1, 2011 as a regularity agency to conduct stress tests of banks in order to detect weaknesses in capital structure. It has the power to overrule national regulators if necessary to prevent unfair competitive advantages between jurisdictions. It issues a report, Common Reporting Framework (COREP) covering capital requirements regarding credit risk, market risk, operational risk, fund and capital adequacy ratios.
The European Financial Stability Facility (EFSF): created by eurozone members to safeguard financial stability in Europe. Authority includes loans to countries in need, intervention in primary and secondary markets pursuant to ECB analysis, finance recapitalizations of financial institutions. It is backed by guarantee from the eurozone members for a total of 780 billion euros and has a lending capacity of 440 billion euros. (not considered adequate)
One euro = 1.3035 U.S. dollar (12/21)
Prominent names: European Union President: Herman van Rompuy, European Central Bank President: Mario Draghi, European Commission President: Jose Manuel Barroso, German Chancellor: Angela Merkel, French President: Nicolas Sarkozy, Italy Prime Minister: Mario Monti, EFSF President: Klaus Regling
Super Committee: While the committee failed, I am keeping this up FYI, since it will continue to get press coverage prior to the “trigger” in January.
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:
Dec. 6, DJIA: 12,097, “Mounting Uncertainties Call for a Pullback of 200 – 300 Dow Points”
Dec. 7, DJIA: 12,150, “Easy Does It ! No Room For Disappointment at Euro Summit
Dec. 8, DJIA: 12,196, “Getting Close to Tectonic Shift- Pessimism to Optimism.”
Dec. 9, DJIA: 12,184, “Good Summit – Uncertainties Linger”
Dec.12, DJIA: 12,184, “Summit’s Success Questioned – Market Seeks Comfort Level”
Dec.13 DJIA: 12,021, “Money Managers Pondering Risk/Reward”
Dec.15, DJIA: 11,954 “More Consolidation Needed”
Dec. 16, DJIA: 11, 568 “ Market Probing for a Level that Discounts Euro-Uncertainties”:
Dec. 19, DJIA: 11,866 “BIG Week: Economic Reports – Watch Housing”
Dec. 20, DJIA: 11,766 “ The U.S. Economy – Last Man Standing ?”
Dec. 21, DJIA: 12,103 “ Housing Turnaround = Wealth Effect Rebound = Economic Expansion”
Dec. 22, DJIA 12,107, “Trading Range Intact
Dec. 23, DJIA 12,169 “Don’t Take the Day Off”
Dec. 27, DJIA: 12,254 “Selective Opportunities”
Dec. 28, DJIA: 12,291 “Market Attempting to Break Out of Trading Range”
*Stock Trader’s Almanac (Must buy – loaded with info that will help make money and preserve capital – www.stocktradersalmanac.com
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