Treading Water for the Moment - Correction Likely

George Brooks  |

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

Wednesday, May 4, 2011 9:14 am EDT

DJIA: 12,807.51
S&P 500: 1356.62
Nasdaq Comp.: 2841.62
Russell 2000: 843.88

The Bull market is intact but needs a goose at this point. Otherwise, the stock market will have to undergo a correction/consolidation, and that may last until fall as the market becomes more volatile ranging between DJIA 11,850 and 12,875.

It’s a bit early to be more specific on the range, but the idea here is I expect the steady daily pattern of an early morning pop, followed by sideways trading throughout the day, with a little push at the close will yield to bigger weekly swings.

Near-term: An early indication as to when a correction/consolidation will occur would be rally failures, the inability of an upmove to hold its gain and a close for the day at the lows.

Quick and hefty profits can be locked in according to one’s investment goals. New buying in stocks that have had a big run recently is risky.

Under these conditions, a stock bought after it has just completed a short-term run can easily pullback 5% to 10% and not return to that level for months. Long-termers may not care, others may opt to time it better.

The ADP Employment report came at 8:15 this morning at 179,000, about what was expected, but a bit soft. The report serves as an alert to the Employment Situation report, released at Friday at 8:30, which includes the Unemployment Report.

The ISM Non-Manufacturing report is released at 10 o’clock, Through April 11, it ia based on a survey of 400 manufacturers in 60 sectors across the United States. It eased 2.4 points in March to 57.3, well above 50 month-to-month growth threshold after six straight advances.

At 8:30 tomorrow, we get a look at the Jobless Claims numbers, which jumped ahead unexpectedly by 25,000 claims for the week ending April 28.

Right now, it doesn’t look like the market is responding much to these economic indicators, and probably won’t for a while unless we get a shocker.

O.K., what do we do for news that renews the uptrend that started in mid-April ?

Most of Q1 earnings reports are behind us, we got a pleasant surprise by bin Laden’s death, though that may trigger a retaliatory response somewhere in the world. Institutions still have nowhere else to invest money but common stocks, however they are paying up at this point for the better prospects.

Congress will haggle over the debt limit vote and probably take a final vote closer to the extended deadline of August 3. The press will be all over it though, since the first deadline is May 16, the second July 8. It is the latter that Treasury Secretary was able to extend further to August 3rd.

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George Brooks

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