Stock Market Rebound? Not Yet!

George Brooks  |

Unless we get a sharp climactic plunge in the stock market, odds favor a number of false starts before we get a turn around from the current sell off, in what I call “probing for a comfort level.”

Today: Odds favor a rally failure between 10:00 and 10:15 this morning and another leg down.

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

Tuesday, May 24, 2011 9:10 am EDT

DJIA: 12, 381.26
S&P 500: 1317.27
Nasdaq Comp.: 2758.85
Russell 2000: 814.04

The market will be buffeted by a number of news events:

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  1. Will Congress raise the debt limit, or let the United States default on certain obligations ? The prospect of that is unthinkable, and therefore won’t happen. BUT, Congress will go right down to the wire and scare the crap out of investors. BIG money will be there with a bushel basket if the market dives in days preceding the projected drop dead deadline, now seen as August 2.
  2. Double dip recession: Yes, the doomsters and spinners will dust this one off again, for lack of something more viable to trash. The economy does appear to be in a pause, per economic reports from the New York and Philadelphia regions, and I think that is why the Fed is split on easing out of it stimulus mode. As recently as May 18, it reaffirmed its low interest rate objectives, though admits it is monitoring inflation expectations closely.
  3. Will inflation run rampant or at least pinch corporate earnings and cause the consumer to cut back on gas use and spending. That’s possible, but commodities are struggling to regain their sizzle. Crude oil tumbled in face of a stronger U.S. dollar, and copper fell the most in two weeks on the LME earlier this week.
  4. European sovereign debt problems: A recurring problem. It would be more serious if problems in Greece, Spain and Italy emerged unexpectedly. Solutions to these issues have been pondered for over a year.

What Does This Mean for Investors?

Lack of a reason to rush in and buy, for one. Sure institutions will be buying on weakness, they have cash to put to work.

For another, it’s summer and the market had a big run between September 2010 and May 2011, investors have been taking profits. And, yes, as speculated in my May blogs, the BIG money used excitement accompanying Q1 earnings reports to SELL.

The market will seek a comfort level, and will have difficulty making up its mind due to the uncertainties that will beset the market in June and July.

The “Best Six Months” for buying stocks ended on schedule on May 2. It looks like we are setting up a great buying opportunity, albeit with a couple false starts as the market probes lower levels.

This market severely punishes a company’s stock if it misses guidance or the Street’s projections. I really question the value of so much emphasis on quarterly reports. What really matters is what the company will earn a year out, and I don’t see quarterly results giving a consistent heads up on that.

George Brooks

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