Selective Strength - Focus Centering on Debt Limit Increase

George Brooks  |

OK, so we got a bounce in commodity prices . After a butt-kicking last week in the stock market, a “technical” bounce is normal. The key is, will highly leveraged traders and newbies to commodity investing bail out when they see last week’s huge overnight losses pared by a rebound ?

Most likely, enough will sell along the way to prevent a surge in most commodities to new highs.

Brooksie’s Daily Stock Market blog: An edge before the market opens.

Tuesday, May 10, 2011 9:34 am EDT

DJIA: 12.684.68
S&P 500: 1346.29
Nasdaq Comp.: 2843.25
Russell 2000: 842.80

While stock prices stabilized yesterday, we didn’t see a rush to buy. Unless BIG money can justify significantly higher prices nine months-to-a-year from now, it will not go on a buying spree.

Odds favor today’s initial rally will find resistance later in the day and sell off.

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That means a volatile market, one that is attractive for patient investors who wait for pullbacks in targeted stocks to buy, but not averse to clipping a quick profit before prices settle back to where they bought them.

Expect the usual uncertainties, Greece, doubts about our own economy, Mid-East tensions, etc..

But center stage will be occupied by debate in Congress about deficit reduction with a increase in the nation’s debt limit held hostage. Technically, the U.S. must increase its debt limit by May 16, but Treasury Secretary Timothy Geithner has indicated the deadline can be extended until August 2.

Few on Wall Street believe Congress will not vote to increase the debt limit, a process that has been done 66 times in the last 50 years. As a percent of GDP, the Gross Federal Debt began to soar in 1980, slipped back in the 1990s, then took off in 2000.

Obviously, something must be done to stop the spiral.

The press will feast on this, spreading angst throughout the financial community, and that stands to be unsettling for the market. They love this stuff.

Both parties will exchange salvos in a game of brinkmanship that will temp Americans to march on Washington. Good for Tylenol PM and Maalox, but not something that makes investment decisions any easier.

But this is the process – no one gets everything they want.

George Brooks

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