Test of the October 4 Rally's Strength

George Brooks |

European UnionBrooksie’s Daily Stock Market blog   - an edge before the open

Tuesday, October 18, 2011       9:07 am EDT

DJIA: 11,392.03      S&P 500: 1200.86

“Be wary of expectations, an abrupt change(or concern for change)in an outlook can have a nasty impact” – Oct 13, blog.

   A major contributor to the Oct. 4 – Oct. 14,  nine percent surge in stock prices was the “expectation” that Europe  was on the verge of  addressing  its banking and sovereign debt problems.

The Group of 20 finance ministers and central bankers wanted the European Union to produce  a solution by  the end of their Brussels  summit meeting this week.

According to Germany’s Chancellor Angela Merkel, that won’t happen  There are simply too many issues to be resolved, Greece being one of them. Its parliament will begin to consider additional austerity measures today.

According to a Bloomberg News report obstacles include resistance by bankers to a deeper restructuring of Greece’s debt and disagreement among nations concerning the leveraging of their bailout fund and recapitalization of financial institutions.

As if this is not enough unexpected news, Moody’s has put France’s AAA credit rating on “negative watch,” and China announced that its economic growth slowed to 9.1% in face of efforts to cool the economy.

Before the open today, Goldman Sachs (GS)  announced Q3 earnings of  a deficit $0.84 a share, far worse than the projected deficit of $0.11 a share.

CONCLUSION: News out of Europe changes as often as a bunch of line dancers on a Saturday night. One day we get optimism, the next day pessimism. This is a highly complex issue which must be resolved by people with big egos and nationalistic roots. The picture will change often and have an impact on stock prices.

More important than Q3 earnings reports are projections for 2012.

For the 6th time, the major market averages have been turned back by the trading range intact since August 9. 

The key to a breakout on the upside is “vision.”   What does the BIG money see 9 months to a year out.  If our current financial and economic problems are behind us by then, these investing behemoths will be buyers on any weakness we see now. 

Support is DJIA 11,020 (S&P 500: 1150).  I incorrectly noted the DJIA support as 11,200 yesterday.

Let’s use this current blast of bad and disappointing news to assess the strength of the market. If the market can absorb it and bounce back, it says a lot about the rebound that began on October 4. A break below my support levels would be a bad sign.


The SuperCommittee has been lost in the shuffle, upstaged by  international financial worries and the state of our economy here at home. Nevertheless, it will raise its ugly head to remind us whether our government is, or is not, dysfunctional.

12-member SuperCommittee timeline:*

Oct. 1- Dec. 31: Both houses of Congress must vote on a Balanced Budget Amendment.

Oct.: 14: Deadline for House and Senate  Standing Committees to submit recommendations.

Nov. 23: Deadline for both houses to vote on a plan with a 10-year deficit reduction  goal of $1.5 trillion Dec. 2: Deadline for committee to submit report and legislative language to President Obama andCongress.

Dec. 23: Deadline for both houses to vote on committee bill.

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:

Sept. 22,  DJIA: 11,124  “Opportunity to Follow Wrenching Probe for a Bottom – Dow 9,680 ?”

Sept. 23,  DJIA: 10,733  “Don’t Buy a Bounce Fueled By Reassuring Statements”

Sept. 26,  DJIA: 10,771  “Stock Market Bottom Here – Premature”

Sept. 27, DJIA: 11,043   “Market Bottom Needs More Time”

Sept. 28, DJIA: 11,180  “Getting Close to a Breakout (UP or Down) From Two-Month Trading Range”

Sept. 29, DJIA: 11,010,  “Approaching Consolidation Crossroads – Up ? or Down ?”

Sept. 30, DJIA: 11,153,  “Bulls Need a Big Day, or Else”

Oct. 3,    DJIA: 10,913,  “Almost Ugly Enough for a Buying Juncture”

Oct. 4,    DJIA:  10,654, “ Marching to Europe’s Drumbeat – October Opportunity Looming”

Oct. 5,    DJIA:  10,808, “ News Whipsaw Becoming Problem for Bottom Watchers”

Oct. 6,    DJIA: 10,939,  “Rally Entering Area of Resistance.  Euro-Rally a Fake out”

Oct. 7,    DJIA 10,939 ,  “ Traders’ Sell – Investors - Defer Purchase”

Oct. 10,  DJIA: 11,103,  “Euro-Fog Lifting – Street Looks to Q3 Earnings”

Oct. 11,  DJIA: 11,433,  “Easy Does It – Market Needs BIG Buying to Advance From Here”

Oct. 12, DJIA:  11,416,  “Looking Beyond This Mess”

Oct. 13, DJIA: 11,518,   “180-Degree Change in Expectations – No Room for Surprises”

Oct. 14, DJIA: 11,478,  “Europe Still the Key – Q3 Earnings Run a Close Second”

Oct. 18, DJIA: 11,644,  “Snags En Route to Euro-Solution to be Expected”


George  Brooks

*Stock Trader’s Almanac – Get it ! Hot off the press.  I have received this invaluable compendium of savvy since 1968.

For more info, go to: www.stocktradersalmanac.com

**National Journal


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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Symbol Name Price Change % Volume
BXE Bellatrix Exploration Ltd (Canada) 0.95 0.02 2.12 201,195
GS The Goldman Sachs Group Inc. 174.67 0.16 0.09 2,004,401


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