Brooksie’s Daily Stock Market blog – an edge before the open
Tuesday, October 4, 2011 9:12
DJIA: 10,654 S&P 500: 1099.23
We have now passed the “ouch” point en route to the “I can’t stand it anymore” point where the urge to sell everything, never to buy another stock takes over.
When will we get to that point ?
I expect it this month.
How far down will the market decline ?
All along I have targeted two levels.
With the Dow at 12,248, I headlined my June 3 blog, “Stage Set for Big Buy – Late Summer, Early Fall” targeting DJIA 10,700 – 10,830 (S&P 500: 1150) as the level of opportunity. With the Dow at 12,143, my Aug 1 blog, “Odds Favor Rally Failure – Another Leg Down” concluded the market could eventually drop further to Dow 9,680 (S&P 500: 1050) after its attempt to stabilize at 10,700. I have since lowered those levels to DJIA 9,460 – 9,680 (S&P 500: 1012 – 1024).
At the time, the gridlock in Congress was dominating headlines, concern about a double-dip recession not as intense, and fear of the domino effect of a Greek default not as overwhelming.
I don’t know how far reaching the damage of a Greek default would be, and I haven’t read anything that assures me anyone else does either.
The market averages stabilized in a Trading range for two months above DJIA 10,600 and S&P 1100 (intraday lows). Yesterday, The major market averages began to break down below those support levels and based on the U.S. stock-index futures as of 8:40 will complete the breakdown this morning.
Without definitive news out of Europe about stabilizing the sovereign debt crisis, our stock market is headed lower. I cannot see anything more than a technical rally intervening until the uncertainty in Europe is resolved. Our economy is struggling on the edge of recession. But European business is estimated to comprise 21% of the S&P 500 companies increasing the odds the U.S. economy will tank.
The 19.8% plunge in the S&P 500 since May 2 has discounted some of these problems, and historically, stocks are cheap based on past recession/bear market valuations, so investors must begin preparing for opportunities that a emotional plunge in stock prices from here will produce.
Two nice rallies ran into a wall yesterday morning. Three minor rallies in the afternoon met the same fate, resulting is a sharp plunge in the final hour of trading, as sellers overpowered buyers in face of an increased likelihood Greece would default, raising fears that it would set off a chain reaction in other countries and the U.S. as well. Big Banks here took it on the chin. Bank of America (BAC) was down 9.6%, Citigroup (C) down 9.8%, Morgan Stanley (MS) down 7.7%.
One of the best ways to sense the future direction of a market is to observe its ability to move counter to the prevailing trend. Yesterday, the market’s trend was down. However, several attempts to rally were stopped in their tracks by sellers and at lower and lower levels. The overhead supply was chasing stocks down.
If the fallout from a Greek default could be quantified, financial markets would have a better chance of stabilizing, but fear of a domino effect is roiling markets here and abroad.
This is a big week for economic reports ! While Europe has hogged the news headlines and savaged investor sentiment, the big question stateside is, will we slip (or plunge) into another recession ?
Expect some light to be shed on the answer this week as we get:
Yesterday, the ISM Manufacturing Index for September was reported to have jumped to 51.6 from August’s 50.6, better than expectations. State and local spending on infrastructure projects (schools, roads and waste disposal facilities nudged Construction Spending 1.4 percent higher in August, beating eforecasts for a decline of 0.2 percent.
Tues. 10 am: Factory Orders: durable, non-durable
Wed. 8:15 am: ADP Employment as of 12th each month and encompasses 400,000 businesses – clue to vital “Employment Situation” report on Friday.
Wed. 10 am : ISM Non-Manufacturing report of 375 firms encompassing agriculture, mining, construction, transportation, communications, wholesale and retail trade.
Thurs. 8:30 am: Jobless Claims– Declined 37,000 for week ending Sept. 24, a welcome positive. October 1 important.
Fri. 8:30: Employment Situation: Very important as clue to progress in “jobs” situation. Also includes Unemployment rate.
Fri. 10 am: Wholesale Trade Inventories
Fri. 3 pm: Consumer Credit which can be impacted by auto sales.
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 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. 16, DJIA: 11,433 “Easy Does It ! Test of August Lows Possible”
Sept. 19, DJIA: 11,509 “Consolidation Pattern to be Resolved Soon”
Sept. 20, DJIA: 11,401 “Beware – Breakout Fake out in the Offing”
Sept. 20, DJIA: 11,401 “Breakout – a Fake out in the Offing ?”
Sept. 21, DJIA: 11,408 “Muddied Waters – News Prompted Breakout a Potential Fakeout”
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”
George Brooks
* Bloomberg News
**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.
