Tuesday, September 27, 2011 9:11 am EDT
DJIA: 11,043.86 S&P 500: 1162.95
Yesterday the DJIA* was up 280 points, today the U.S. stock-index futures indicate it will be up some 175 points in early trading.
Yesterday’s blog headlined, “Stock Market Bottom Here – Premature,” reasoning I believed the market could drop further below DJIA 10,000, back to mid-2010 levels, which would not be unreasonable based on today’s negatives.
Can I be wrong ?
Of course, and I assure you I will admit it as soon as I see it that way. One of the earliest lessons I learned is to quickly admit a position is wrong – bullish or bearish.
On the surface, it appears that the market’s current strength is in response to news that yesterday the U.S. Senate passed a stopgap spending bill (79-12) that will fund the government through Nov. 18 and avoid a “shutdown.” as well as speculation that European governments will soon agree on measures to address the euro-zone debt crisis. Contagion is not an option.
The absence of those two negatives alone warrants a bump in stock prices, though the timing of a resolution of the euro-zone debt crisis is uncertain.
What’s left to worry about ?
Try a recession here, abroad or in both places. Then too, there is our dysfunctional Congress attempting to govern along strict partisan lines without compromise.
Confidence drives stock prices up, lack of it allows them to decline. A huge range in price/earnings ratios over the years attests to this.
As long as our Congress persists unwaveringly along party lines unable to craft reasonable solutions to pressing problems, we will be plagued by a dearth of confidence making it more difficult for a sustainable up move in stock prices. Sharp spurts – yes, a sustained move – no.
The sideways trading range that started on August 8 and featured wide swings between DJIA10,572 (S&P 500: 1101) at the low end of the range and11,740 (S&P 500: 1220.10) at the upper end is still intact.
Last week, it looked like the market would break down out of this range, but institutions stepped in with enough buying to prevent a breakdown.
October is just around the corner, a month that has launched 11 post-WWII bull markets (1946,1957,1960,1962,1966,1974,1987,1990,1998,2011, 2002).**
For months, I have been projecting an upturn in the market in September/October, but at lower levels. I still see that happening next month.
November 1 kicks off the “Best Six Months” for buying stocks, so we are getting close to an attractive buying opportunity.**
TODAY:Resistance starts at DJIA 11,235 (S&P 500: 1182). The persistence of the stock market is important here. A rally failure is deadly. If the BIG money looks out a year or so and sees clear sailing, it will stampede, buying every share of targeted stocks in its way. It can’t buy “in-size” without showing its hand.
12-member SuperCommittee timeline:***
Sept. 22: Deadline for Congressional consideration of resolution of disapproval for first $900 bn tranche
of debt limit increase.
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
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.”
*I frequently refer to the Dow Jones Industrial Average (DJIA) even though the S&P 500 is broader based, because it is the most familiar to the public and media. Its turns up and down correlate well with the S&P and its 30 components have a major impact on it, as well.
** Stock Trader’s Almanac
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