DJIA:12,107.74 S&P 500: 1243.72
This year’s “Best Six Months” for investing in stocks (Nov.1 to Apr.30) started ahead of schedule (as it did last year) with a sharp rebound beginning Oct.4 from DJIA 11,192 ( S&P 500:1158). To date, that works out to an increase of 8.1% and 7.2% respectively. There have been no down “pre-presidential” election years in 72 years,* but 2011 is a cliff hanger – so far with the DJIA up only 4.5% and S&P 500 down 1.2%.
Allen Sinai, Decision Economics sees an economic recovery producing growth of 2.50% to 2.75% in 2012, up from 1.5% to 2% this year. Since the recovery began in June 2009, Sinai tells Bloomberg, households have focused on saving rather than spending, while banks have concentrated on rebuilding capital instead of lending. That may be changing, he explains, as both have made progress in rebuilding their balance sheets.
This makes sense, as I have explained myself in recent posts, the length of an economic recovery mirrors the severity of the recession preceding it. The current recovery SHOULD take time, since the 2007 – 2009 recession was the worst since the big recession in the 1930s.
A number of housing reports (see below) were scheduled this week. One, the NAHB/Wells Fargo Housing Market Index was reported Monday, ergo the third straight month in which builder confidence improved.
Tuesday, an increase of 9.3% in Housing Starts for November was reported vs. an October decline of 2.9%. Both reports were big reasons for yesterday’s surge in prices.
November’s Existing Home Sales, was released at 10 a.m. yesterday, posting a 4% increase over October adding to the sense that this sector has reached a turning point as most things do at extremes.
Today we get five more:
(8:30 a.m.) GDP – Third estimate for Q3 growth. The third estimate for Q3’s GDP to a plus 1.8% from a plus 2.0%. This will need further crunching to compare it to what appears to be a pick up since Sept. 30.
(8:30 a.m.) Jobless Claims – (workers filing for first time). Down 4,000 for week ended Dec. 17 to 364,000 vs. an expected increase. – O.K.
(9:55 a.m.) Consumer Sentiment –U. of Michigan survey reflects sentiment for spending. Economists project a slight increase for December vs. November,
(10: a.m.) FHFA House Price Index single family
(10 a.m.) Leading Indicators – for overall economy as reflected by indicators that “lead” other indicators. Another uptick is expected for November. Economists see a gain of 0.3 percent vs. a gain of 0.9 percent in October.
(8:30 a.m.) Durable Goods – new orders for hard goods
(10 a.m.) New Home Sales – newly constructed homes
CONCLUSION: Without Europe’s drag, our stock market would be much higher. Take a meltdown of the euro out of the picture, it is likely the U.S. stock market could go it alone. Unfortunately, the eurozone leaders can’t assure the world that won’t happen, so we have to factor the uncertainty into our investment decisions. However, money managers really have nowhere else to invest money, assuming they are not sure stocks will plunge from here, ergo they will BUY, if only selectively.
All this spells a trading range for the market averages. Currently, that range runs between DJIA 12,300 on the upside (S&P 500:1275) and DJIA 11,195 on the downside (S&P 500: 1160). A high volume breakout above the upper limits could carry as far as DJIA: 12,745 (S&P 500: 1330) before running into headwinds. Based on the current environment, I don’t see the lower end of the range broken on the downside.
TODAY: The market needs to digest Tuesday’s 337-point move in the DJIA. Resistance today begins at DJIA 12,187 (S&P 500: 1258). Minor support is DJIA: 12,033 (S&P 500:1235). There is an even chance minor support will be broken followed by a slip to DJIA: 11,935 (S&P 500: 1222) by early tomorrow, setting up a trading opportunity.
The European Union (EU) is an economic and political union of 27 sovereign member states with origins going back to 1958, but which was officially established by the Maastricht Treaty in 1993. Its goals are a free movement of goods, services, capital and people differing in life style, language, economies, geography, religion, politics and history.
Its 27 Members include: Austria, Belgium Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. The EU comprises a population exceeding 500 million people a GDP exceeding 16.2 billion USD, some 20% of the world’s GDP.
Important components of the EU include: European Parliament, European Commission, Council of European Union, European Council Court of Justice and European Union, and the European Central Bank.
The euro area (eurozone) is an economic and monetary union (EMU) of 17 member nations that use the “euro” as their common currency and sole legal tender. Its members include: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain.
While the goal of single currency originated with the European Economic Community (EEC) in 1969, it was not until 1993 that members were legally bound to start the monetary union no later than January 1, 1999. At that point, the euro was launched after which it was an “accounting” currency until January 1, 2002 when euro notes and coins were issued and national currencies phased out in the eurozone.
The European Central Bank (ECB) is the central bank for the eurozone. Governed by its president, Mario Draghi, and a board of the heads of national central banks, the ECB’s primary responsibility is to maintain the euro’s purchasing power and price stability within the eurozone.
The Eurosystem is the monetary authority of the eurozone comprised of the ECB and the central banks of its member states, which are charged with applying the ECB’s policy.
The European Commission, comprised of one commissioner from each of the 27 member states, represents the interests of the EU, drafts proposals for laws, and manages the day-to-day business and disbursement of funds.
European Banking Authority (EBA): Established on Jan. 1, 2011 as a regularity agency to conduct stress tests of banks in order to detect weaknesses in capital structure. It has the power to overrule national regulators if necessary to prevent unfair competitive advantages between jurisdictions. It issues a report, Common Reporting Framework (COREP) covering capital requirements regarding credit risk, market risk, operational risk, fund and capital adequacy ratios.
The European Financial Stability Facility (EFSF): created by eurozone members to safeguard financial stability in Europe. Authority includes loans to countries in need, intervention in primary and secondary markets pursuant to ECB analysis, finance recapitalizations of financial institutions. It is backed by guarantee from the eurozone members for a total of 780 billion euros and has a lending capacity of 440 billion euros. (not considered adequate)
One euro = 1.3035 U.S. dollar (12/21)
Prominent names: European Union President: Herman van Rompuy, European Central Bank President: Mario Draghi, European Commission President: Jose Manuel Barroso, German Chancellor: Angela Merkel, French President: Nicolas Sarkozy, Italy Prime Minister: Mario Monti, EFSF President: Klaus Regling
Super Committee: While the committee failed, I am keeping this up FYI, since it will continue to get press coverage prior to the “trigger” in January.
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:
Nov. 28, DJIA: 11,231, “Finally ! The European Leaders Act”
Nov. 29, DJIA: 11,563, “Game’s On !”
Nov. 30, DJIA: 11,600, “Full Court Press to Address Europe’s Problems”
Dec. 1, DJIA: 12,020, “New “Tradable” Trading Range DJIA Emerging”
Dec. 2, DJIA: 12,020, “U.S. & Euro Shaping Up – Game Changers ?”
Dec. 5, DJIA: 12,019, “Big European Week Spells Volatility”
Dec. 6, DJIA: 12,097, “Mounting Uncertainties Call for a Pullback of 200 – 300 Dow Points”
Dec. 7, DJIA: 12,150, “Easy Does It ! No Room For Disappointment at Euro Summit
Dec. 8, DJIA: 12,196, “Getting Close to Tectonic Shift- Pessimism to Optimism.”
Dec. 9, DJIA: 12,184, “Good Summit – Uncertainties Linger”
Dec.12, DJIA: 12,184, “Summit’s Success Questioned – Market Seeks Comfort Level”
Dec.13 DJIA: 12,021, “Money Managers Pondering Risk/Reward”
Dec.15, DJIA: 11,954 “More Consolidation Needed”
Dec. 16, DJIA: 11, 568 “ Market Probing for a Level that Discounts Euro-Uncertainties”:
Dec. 19, DJIA: 11,866 “BIG Week: Economic Reports – Watch Housing”
Dec. 20, DJIA: 11,766 “ The U.S. Economy – Last Man Standing ?”
Dec. 21, DJIA: 12,103 “ Housing Turnaround = Wealth Effect Rebound = Economic Expansion”
*Stock Trader’s Almanac
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