Investors Shouldn't Chase Rallies, StockMarket Needs More Time

George Brooks  |

There doesn’t seem to be any rush to buy stocks, and I don’t think that will change until late July, early August as concerns about Congress raising the nation’s debt limit, generally a routine matter, cast a pall over the market.

Today: An attempt to stabilize at Dow Jones Industrial Average 12,340 this week is in jeopardy. Failure to hold, calls for a drop to DJIA 12,300. Overhead supply starts at DJIA 12,425 (S&P 500: 1323).

Institutions will often use the increased volume caused by a break below support levels to do some buying. That can happen here, but I see it as temporary. The market needs time.

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

Wednesday, May 25, 2011 9:23 am EDT

DJIA: 12356.31
S&P 500: 1316.65
Nasdaq Comp.: 2742.16
Russell 2000: 810.33

I am not certain we will get more than a trading opportunity in late July/early August when the debt ceiling is raised after a scary showdown. We may have to wait until September/October for liftoff.

Two things are critical as I see it NOW.

One, investors don’t want to get sucked in prematurely by a unsustainable rally.

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This is a “pre-presidential election year (no losers in 72 years ) and the market’s weakness stands to be prelude to a juicy buying opportunity.

Foreign debt concerns are once again causing a drag on investor sentiment. Portugal, Ireland, Italy, Greece and Spain are the current focus of attention . A bailout of any one or more could stress EU or IMF resources.

The press has an acronym for these countries – PIIGS.

Beg pardon, but was that necessary ? – Have these guys no shame ?

The Street is beginning to worry about another slowdown in the economy, somewhat comparable to that experienced a year ago, which prompted QE2.

The Durable Goods report was released at 8:30 today and gave reason to be concerned. April Durables dropped 3.6% vs a gain in March of 4.1%. It was the largest decline since October 2010. Following a surge between June 2009 and March 2010, Durables flattened out, even trended down a bit. A major contributor to this drop was lower bookings for aircraft at Boeing (BA) and the disruption of the supply of auto parts as a result of Japan’s earthquake/tsunami and nuclear disaster.

Tomorrow we get two reports at 8:30, a revised Q1 GDP and Jobless Claims. Q1 GDP has already been reported at an annual rate of plus 1.8% versus a hefty gain of 3.1% for Q4. Weakness in Q1 GDP included a drop in government purchases and personal consumption a deceleration in nonresidential fixed investment and a boost in imports.

Jobless Claims, through May 21, announced at 8:30 tomorrow, will compare with a drop of 29,000 for the week ended May 14, and a drop of 40,000 for the week prior to that.

These issues warrant concern, but

George Brooks

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