Friday, October 7, 2011 9:15 am EDT
DHIA: 11,123.33 S&P 500: 1164.97
I missed Tuesday’s abrupt one-day reversal, was surprised at how easily the market soared in the final hour of trading. Kind of like taking a called strike-three with men on base. I wouldn’t even have had time to shoot out a “Bulletin” if I did see it, though.
Like a lot of my golf shots, I’d like to have that one back, not that I would have predicted it, but I could have warned that an initial rebound back into a trading range following a downside breakout does happen.
This week’s rally was mostly due to sudden expectations that a solution to Europe’s sovereign debt issue was imminent. Also helping was a week of somewhat stable economic reports, and I suspect decisions by the domineering Wall Street computers exploiting sharply lower prices. The abruptness of the move suggests computer decisions had a lot to say.
So, what now ?
I don’t think chasing stocks at this level now is a good idea. Selective buys, fine, but not ones that have run up quickly. Even if we get some reassurance out of Europe, a lot of that factor is already discounted. I’d be inclined to sell the news if it comes with stocks at this level.
So much of our problem here is CONFIDENCE, confidence that people with the power can get things done will act decisively. Indecision, lack of political courage, common sense, and inflexible political ideology seem to trump any earnest effort to do the right thing.
Have we seen the lows for the May 2 to October 4, 22% plunge?*
I think we will test the lows which stand at DJIA 10,362 (S&P 500: 1074) with a better than 50-50 chance of breaking them.
While the investment environment is hobbled by a lot of negatives, the bulls can take comfort in the fact there simply is nowhere else to invest cash, and historically stocks are cheap. Then too, we are on the threshold of the “Best Six Months” for owning stocks**
At 8:30 we got the Employment Situation report, very important for the obvious reason – JOBS.
Non-farm payrolls increased 103,000, Ok, but not enough to reverse the unemployment rate which stays at 9.1%. Private sector jobs rose 137,000. The U.S. stock-index futures liked the report rising enough to indicate a firm open to trading.
While Europe’s woes have the spotlight, the bottom line for investors is whether we fall into a recession, or not. If not, and the economy bumps along in a sluggish state, stocks are cheap.
That’s why monitoring the economic reports is gaining importance. So far this week, the reports suggest the economy is hanging tough.
Monday, the ISM Manufacturing Index for September was reported to have jumped to 51.6 from August’s 50.6, better than expectations. State and local spending on infrastructure projects (schools, roads and waste disposal facilities nudged Construction Spending 1.4 percent higher in August, beating forecasts for a decline of 0.2 percent.
Tuesday, August Factory Orders increased by the most in three months, however continued growth will depend a lot on European economies.
Wed. 8:15 am: ADP Employment as of 12th each month and encompasses 400,000 businesses – clue to vital “Employment Situation” report on Friday. Today’s ADP Employment report stands to be a sneak preview of Friday’s Employment Situation report. It came in at a plus 91,000, better than the projected 75,000, two-thirds of it small business employment.
Wed. 10 am : ISM Non-Manufacturing report of 375 firms encompassing agriculture, mining, construction, transportation, communications, wholesale and retail trade. September was down slightly to 53 percent from 53.3 in August indicating a slowing of growth in the economy.
Thurs. 8:30 am: Jobless Claims- Declined 37,000 for week ending Sept. 24, a welcome positive, but increased 6,000 for week ending October 1. Conclusion: OK from the standpoint that the number would be higher if a recession was well underway.
Fri. 10 am: Wholesale Trade Inventories
Fri. 3 pm: Consumer Credit which can be impacted by auto sales.
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 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 and
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. 16, DJIA: 11,433 “Easy Does It ! Test of August Lows Possible”
Sept. 19, DJIA: 11,509 “Consolidation Pattern to be Resolved Soon”
Sept. 20, DJIA: 11,401 “Beware – Breakout Fake out in the Offing”
Sept. 20, DJIA: 11,401 “Breakout – a Fake out in the Offing ?”
Sept. 21, DJIA: 11,408 “Muddied Waters – News Prompted Breakout a Potential Fakeout”
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”
* I use intraday high/low. A 20% drop in the S&P 500 comprises a bear market by “accepted” technical standards. Using the closing S&P prices the market declined only 19.3% during the period, not enough to be an official bear market. Still hurts, right ?
** Stock Trader’s Almanac
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