The good news started to flow last week when we were told by Germany’s Merkel and France’s Sarkozy that a plan to address Europe’s bank and sovereign debt problems would be released on November 3.
Additionally, economic indicators released in recent weeks indicate our economy is not headed for a recession.
I’d have to believe the BIG money saw a flicker of light out there at this endless tunnel, but so far there has not been enough trading volume to convince me they are willing to load up aggressively. Until it can see a renewal of the economic recovery begun so slowly in mid-2009, it will be reluctant buyers.
The market is now pressing the upper limits of a trading range intact since early August and with an upper limit of DJIA 11,740 (S&P 500: 1230), when only 6 days ago it momentarily broke down through the lower limits of the range of DJIA 10,572 (S&P 500: 1114).
The stock market has rebounded into an area that has attracted a lot of selling over the last two months. The buying volume must pick up from here to sustain the up move.
This week won’t offer much in terms of economic reports until Thursday’s Jobless Claims and Friday’s Retail Sales and Consumer Sentiment.
TODAY: Suddenly the bulls have a lot going for them. It appears there won’t be a recession or a meltdown in Europe. Q3 earnings didn’t grow as fast as in Q1 and Q2, but they grew at double digit rates anyhow. Stocks are historically cheap, many companies are flush with cash. We are approaching the “Best Six Months” for investing (Nov. 1 – May 1),* AND where else can an investor put their money, assuming there won’t be another leg down in the market ?
The latter remains a possibility, especially if concerns of a recession and a European crisis return. Technically, the market should correct its recent surge. It had a chance yesterday and couldn’t. Q3 earnings reports may add some juice to this rally. Obviously, there is risk to buying after a big move; that has to be weighed with one’s tolerance for risk. Acquiring a partial position is one answer. If the market continues to rise an investor is making money, if it declines the investor can add to the position, lowering his/her average cost.
IF THE BIG MONEY SEES A GREEN LIGHT 9 MONTHS TO A YEAR OUT, IT WILL BUY “IN-SIZE” AND “PAY-UP” FOR STOCKS (“RUN THE TABLE”) AND THE BULL MARKET WILL BE BACK ! IT CANNOT DO SO WITHOUT SHOWING ITS HAND – INCREASED VOLUME.
The SuperCommittee has been lost in the shuffle, upstaged by international financial worries and the state of our economy here at home. Nevertheless, it will raise its ugly head to remind us whether our government is, or is not, dysfunctional.
12-member SuperCommittee timeline:*
Oct. 1- Dec. 31: Both houses of Congress must vote on a Balanced Budget Amendment.
Oct.: 14: Deadline for House and Senate Standing Committees to submit recommendations.
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.
Dec. 23: Deadline for both houses to vote on committee bill.
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:
Sept. 22, DJIA: 11,124 “Opportunity to Follow Wrenching Probe for a Bottom – Dow 9,680 ?”
Sept. 23, DJIA: 10,733 “Don’t Buy a Bounce Fueled By Reassuring Statements”
Sept. 26, DJIA: 10,771 “Stock Market Bottom Here – Premature”
Sept. 27, DJIA: 11,043 “Market Bottom Needs More Time”
Sept. 28, DJIA: 11,180 “Getting Close to a Breakout (UP or Down) From Two-Month Trading Range”
Sept. 29, DJIA: 11,010, “Approaching Consolidation Crossroads – Up ? or Down ?”
Sept. 30, DJIA: 11,153, “Bulls Need a Big Day, or Else”
Oct. 3, DJIA: 10,913, “Almost Ugly Enough for a Buying Juncture”
Oct. 4, DJIA: 10,654, “ Marching to Europe’s Drumbeat – October Opportunity Looming”
Oct. 5, DJIA: 10,808, “ News Whipsaw Becoming Problem for Bottom Watchers”
Oct. 6, DJIA: 10,939, “Rally Entering Area of Resistance. Euro-Rally a Fake out”
Oct. 7, DJIA 10,939 , “ Traders’ Sell – Investors – Defer Purchase”
Oct. 10, DJIA 11,103, “Euro-Fog Lifting – Street Looks to Q3 Earnings”
George Brooks
*Stock Trader’s Almanac –
**National Journal
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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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