Odds Favor Rally Failure, Another Leg Down

George Brooks |

President Barack ObamaBrooksie's Daily Stock Market blog

Monday, August 1, 2011 8:10 am EDT

DJIA: 12,143.74
S&P 500: 1292.28

Looks like we have a deal - not "done," of course, until voted on. The U.S. stock-index futures indicate a strong open. I expect this rally to be short-lived, running into selling at DJIA 12,385 (S&P 500: 1316), followed by a slide to lower levels with a bottom in September/October. While expected, a downgrade by S&P or Moody's would have an added negative impact. The creation of a bipartisan "Super Committee" to deal with future deficit reduction stands to result in more of the same - ideological paralysis.

What is the downside risk? Initially, I think DJIA 10,700 - 10,830 (S&P 500: 1150).

Can the market drop further? Yes. Depending on the investment environment when it gets there, that level should produce an attempt to stabilize, even rally. If Congress continues to be divisive along radical ideological lines and the economy shows no signs of firming, the market should drop to DJIA 9,680 (S&P 500: 1050).

Here's the real danger.  The behavior of the Tea Party members of Congress suggests to Americans and the world that there are no longer any rules, or limits, that even the highest offices in our government are fair game for obstruction and paralysis. Hostility from within is very scary.

If the market was plunging, gloom thick as tar, and investment sentiment well past the "ouch" point en route to the "I can't stand it anymore point," I'd feel more comfortable about being positive.

I just don't think the market has discounted what is really happening, probably because what is happening is so unbelievable.

Our nation's economic expansion has stalled.  I think it will resume its expansion, but not with  legislative paralysis driven by political ideologies, which translates into a paralysis in spending by corporations and individuals.

George Brooks

*google “Starve the Beast” –something you need to know to
understand what is happening.

…………………………………………………………………………………………………………

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

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
CU.PR.F:CA Canadian Utilities Limited cumulative redeemable s 20.65 -0.03 -0.15 8,739

Comments

Emerging Growth

Immunovaccine Inc.

Immunovaccine Inc is clinical stage biopharmaceutical company. The Company develops products based on its proprietary vaccine enhancement platform in T cell activating therapies for cancer.

Private Markets

Ozobot by Evollve Inc

Ozobot is a world leader in compact super intelligent robots that entertain and educate through fun interactive gaming.

BioSculpture Technology, Inc.

BioSculpture Technology, Inc. (“BST”) is a commercial-stage medical device manufacturer of liposuction surgical instruments for surgeons. It offers the FDA-cleared Twin Cannula Assisted Liposuction ("TCAL") Airbrush Liposculptor II® controllers, Airbrush®…