Institutions Nibbling - Must Reach to Generate Big Rally

George Brooks |

George Brooks Stock MarketAfter using increased stock trading volume created by a temporary break below support at Dow Jones Industrial Average 12,340 Wednesday, Wall Street institutions followed up with buying again yesterday, and odds favor they will do so today.

These money managers must put client’s cash to work, and will use pullbacks to get the job done.

However, in order to get a strong rally, they will have to be willing to reach for stocks, not just buy on weakness.

The overall environment doesn’t encourage that, nor does it justify heavy selling either.

Expect pockets of strength in emerging industry groups and stocks that are rebounding after taking a pasting, but I think patience will be rewarded.

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

Friday, May 27, 2011 9:23 am EDT

DJIA: 12,402.76
S&P 500: 1325.69
Nasdaq Comp.: 2782.92
Russell 2000: 830.87

A break above DJIA 12,450 (S&P 500: 1328) calls for a further move to DJIA 12,550 (S&P500 1345) by next Wednesday, assuming no new negatives over the weekend. Beyond that, the market stands to sell off moderately again.

This is one of a number of rallies that can be expected in coming months until Congress votes to raise the nation’s debt limit, which could come in late July, or August 1 ahead of the August 2 deadline.

There is a good chance that the market will rally strongly starting July 29 or August 1 in anticipation of that decision and in face of dire warnings by the press of unthinkable consequences if the ceiling is not raised. The BIG money may jump the gun, especially if it appears that Congress decides to lower corporate taxes along with the elimination of certain write offs.

Consumer Sentiment for May will be released at 9:55 today, but It doesn’t look like it will be a market mover unless it moves dramatically in one direction or another.

Three-day weekends are usually characterized by below average trading, and I don’t see any reason for this Friday to be an exception. Traders tend to opt for less exposure in the market over a three-day weekend what with a longer time for unexpected adverse news to break.

Buying dividend-paying stocks just to get the dividend

Worth noting for buyers and holders of stocks paying a healthy dividend: The price of the stock is adjusted downward for the amount of the dividend on the ex-dividend date, the date the company cuts the dividend check and it leaves the corporate coffers and goes out to the shareholder.

Whether the stock rises before or after the ex-date depends more on the action in the overall market and stock itself. While you may get a dividend to deposit, its value may be offset by a decline of a like amount in the price of the stock. Consider other factors before buying a stock just to get the dividend.

Memorial Day:

Have a “Happy” Memorial Day weekend would be an inappropriate message here. More appropriate would be: Take time this weekend to give thought to the sacrifices that have been made by those serving in our armed forces in the past and present. Better yet, don’t limit your awareness to Memorial Day, but be frequently aware of those sacrifices going forward, as well. When most of us were required to perform a military obligation, there was a more deep-set awareness of its importance, since most people’s service touched all families. Not so with a professional army, so to speak, since it seems to be someone else’s family member who is at risk. They need to know you care. Given any opportunity, a sincere “thank you” would be appreciated. It’s not just those who didn’t come back that must be appreciated, but those who came back with less than they left with, as well as those in a supporting non-combat role.

George Brooks
sensiblesleuth@gmail.com

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
SJT San Juan Basin Royalty Trust 6.35 0.05 0.79 147,069

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