New Trading Range Emerging

George Brooks |

Stock Market Gainers LosersBrooksie's Daily Stock Market blog  - an edge before the open

Thursday, December 1, 2011     9:11 am EST

DJIA: 12,045.68       S&P 500: 1246.96

The doomsters will be climbing out from under their respective rocks to trash this week’s rally and the news that triggered it.

Who could blame them, they were all set to cash in on everyone else’s demise when those inconsiderate central bankers decided to show concern for Europe’s woes, not to mention some pleasant surprises on the U.S. economic front.

There will be days doomsters will  look right, but on the whole we are now in a trading range DJIA 12,300 to 11,200 (S&P 500: 1290 to 1160) that will offer many opportunities though good timing of entry points is critical.

Uncertainty and the consequences of slo-mo European action  led global markets to the edge of a cliff where a chain reaction of governmental defaults and financial chaos loomed, impacting all markets worldwide.

One TV host, whose name and network will go unmentioned, couldn’t resist a negative spin when interviewing an expert.  I paraphrase - “Well, you wouldn’t  really say this action by five central banks is a game changer would you” ?  (asked and answered)

He missed the point.  The game changer here is the fact the world’s BIG guns were wheeled out to prevent global contagion.  The doomsters wanted a meltdown, World leaders, represented by the Fed, the European Central Bank,  and the central banks of Canada, England,  Japan and Switzerland, DIDN’T !

But, TV hosts don’t have to look abroad for a story.  The central bank news upstaged upbeat U.S. economic news yesterday. The ADP Emlpoyment report (Oct.-Nov.) sported a gain  in jobs of 206,000 vs. a projection of 130,000.  The Chicago PMI (Purchasing Managers Index) rebounded to a 7-month high in November, the 26th month of expansion.  It reflected increases in employment, an 8-month high in New Orders, a 7-month high in Production and 14th month low in price increases. Pending Home Sales, based on contract signings, surged 10.4%. Today, the Jobless Claims came in at a meaningless plus 6,000.  Tomorrow’s Employment Report, released at 8:30 will shed more light on the nation’s jobs picture.

CONCLUSION:  From intraday low to high, the DJIA has soared 875 points (7.8%), S&P 500: 88 points (7.6%) in 3 days. Buyers who took the long Thanksgiving weekend were scrambling to buy, short sellers doing the same to cover their shorts. But there were buyers who had been on the sidelines waiting for some indication that action would be taken to address Europe’s banking and sovereign debt woes.

What we are left with is a change in the game.  What appeared to be a relentless slide south now stands to become a wide swinging trading range that will mirror the bull/bear flavor of the day going forward, but with a more positive tone. The new trading range is in its formative stage but generally runs between DJIA 12,300 and 11,200 (S&P 500: 1290 and 1160). I will make adjustments to this range in coming days/weeks as the tempo of the market unfolds.

Near-term support is DJIA 11,740 (S&P 500: 1216).

One other point.  News and expectations have been predominantly negative in recent  months. At some point, BOTH will change for the better. That will catch the Street, the press and doomsters by surprise.

Super Committee:    While the committee failed, I am keeping this up FYI, since it will continue to get press coverage prior to the “trigger” in January.

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:

Nov. 2  DJIA: 11,637,    “Risk-Taker’s Buy Shaping Up”

Nov.3   DJIA: 11,836,    “Again – It’s  All About Europe”

Nov.4   DJIA: 12,044,    “Easy Does It !  Traders to Take Some Profits”

Nov. 7  DJIA: 11,983,    “SuperCommittee Will Soon Take Center Stage”

Nov. 8  DJIA: 12,068,    “Stock Market Hanging Tough – Would Love to Run…. but…”

Nov. 9  DJIA:  12,170    “Italy’s Turn to Crunch Prices, But the SuperCommittee is in the On-Deck  Circle”

Nov. 10,  DJIA:  11,780, “ OK Greece and Italy – Cut the Crap – Decision Time !”

Nov. 11,  DJIA:  11,893, “Potential for an Upside Breakout Looms, Absent New Negatives”

Nov. 14,  DJIA:  12,053, “SuperCommittee and Economy Taking Center Stage”

Nov. 15,  DJIA:  12,078, “European Outlook Tentative – U.S. Outlook Picking Up”

Nov. 16, DJIA:   12,096, “Europe – Surprise Us for a Change – Get the Job Done !”

Nov. 17, DJIA:  11,905,  “Time for European Leaders to Avert Contagion – European Central Bank to the Rescue ?”

Nov. 18, DJIA:  11,770,  “Stock Market a Coiling Spring ?”

Nov. 21, DJIA:  11,796,  “Occupy Washington”

Nov. 22, DJIA:  11,547,  “Uncertainty Rules – But Trader’s Opportunity Looms Wednesday Morning Early”

Nov. 23, DJIA:  11.493,  “Darkness Before the Dawn ?  Germany Starting to Feel  the Heat”

Nov.25, DJIA :  11,257,  “Europe, Where Art Thou ?”

Nov. 28, DJIA:  11,231,  “Finally ! The European Leaders Act”

Nov. 29, DJIA: 11,563,   “Game’s On !”

Nov. 30, DJIA: 11,600,   “Full Court Press to Address Europe’s Problems”

George  Brooks

 *Headlines Bloomberg.com

**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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