Clearly the investment environment is souring every day; there just doesn’t seem to be any way out of this mess, whether it’s the economy, Congressional paralysis, risk of default abroad, political unrest, divisiveness here at home.
However, the stock market has a way of adjusting to levels that discount negatives, and it has a way of doing the same for the future. At some point it will have adjusted for the negatives, then look to the future, ergo, a buying opportunity.
Brooksie’s Daily Stock Market blog: An edge before the open.
Wednesday, June 22, 2011 9:23 am EDT
DJIA: 12,190.01
S&P 500: 1295.52
Nasdaq Comp.: 2687.26
Russell 2000: 806.37
This still looks like a combination of a technical rally and a Greek rally, both potentially short-lived.
If the market can’t gain traction technically or from the postponement of a Greek default, where can it come from?
Does the Fed have yet another stimulation card to play? Less than a year ago, it introduced QE2, launching a huge rally in stock prices between late August and May2.
We may get a clue this afternoon when Fed chairman Bernanke holds his second press conference at 2:30.
If surprisingly good economic news pops up or indications that an accord has been reached in Congress for a debt reduction plan going forward that facilitates the raising of the nation’s debt ceiling ahead of default, then this bump up in prices in recent days will turn into a major rally.
I don’t know about the Fed, but I think it is too early for good economic news and about a month too soon for a break in the debt reduction/debt ceiling issues.
However, as I have been emphasizing, the market is probing for a level where the worst is discounted and investors should be preparing for one of two buying opportunities I see between now and October.
I don’t see Congress allowing too much hysteria about a U.S. government default on certain obligations to fester, and clearly don’t see default – political suicide for the Republicans who are forcing the issue.
As noted recently, I have been seeing a “softening in the rhetoric and MMA tough talk” about reaching an acceptable deal or a debt ceiling increase will NOT be approved. Bullshit ! The debt ceiling has been raised 74 times since 1962, just taking the country to the edge is destructive and both parties know it.
Simple and innocent as it may have appeared, the weekend golf outing by President Obama, Vice President Biden, House Speaker Boehner and Ohio Governor, Kasich was intended to be a message to the public, kind of a, “Don’t sweat it, we can all get along.” Behind closed doors, they know where the “don’t cross” line is. I think some very powerful, less visible, individuals read them the riot act.
Of course there is always the “what if” question, in this case Congress bungling into a default situation. That wouldn’t be a slippery slope, that would be a cliff, just another reason “why” we won’t go there.
It’s a great time to prepare a list of stocks one wants to own for the next upleg in the stock market, but clearly a risky time to buy long-term bonds en masse. I think we are approaching a significant buying opportunity though for stocks, at least partial positions.
The negatives plaguing the market can vanish over night, in which case the market will respond to the good news when announced, or ahead of it if the BIG money gains an insight (or inside) as to when that is coming and runs the table.
George Brooks
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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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