The major market averages surged on reduced volume yesterday then hit a wall during the last hour of trading with volume increasing on the downside and prices closing well off the highs for the day.
While that action was disappointing, more proof is needed to adequately assess the strength of the market’s recent 3-day upmove.
As of 8:50,the U.S. stock-index futures are signaling slightly higher prices at the open. Institutions will continue to buy on dips, however it will take aggressive buying at higher and higher prices to overcome resistance now starting at DJIA 11,385 (S&P 500: 1195).
A decline from here or another rally failure where stock prices give up most of a gain for the day would suggest a test of the recent lows and possibly a downside breakout from the trading range intact since August 9.
It has been nearly two months now that the market has been locked in a trading range between DJIA 10,600 and 11,740 (S&P 500: 1101 – 1220).
I am looking for a buying opportunity in October, but really don’t think the fruit is ripe for picking –YET!
I feel there is a good chance this trading range can break down further with the DJIA tumbling below 10,000 (S&P 500 below 1020). There is good support between DJIA 10,575 and 10,600 (S&P 500: 1100 and 1120); it has held on 6 occasions.
If develops, it will probably start out slowly, then accelerate as fear mounts with a final target around DJIA 9,460 – 9,680 (S&P 500: 1012 – 1024).
That’s a stretch, and a breakdown depends on uncertainty regarding the economy here and abroad and continued dysfunction in Congress. Durable Goods for August were reported this morning at a minus 0.1 percent vs a gain of 4.1 percent in July. Not bad in that it didn’t give back the 4.1 percent July gain. The jury is still out on whether the U.S. will sink into another recession or bump along between recession and moderate expansion – Europe likewise.
Regardless, I think it is enormously important that investors prepare for an opportunity in coming weeks, especially if the market plunges below DJIA 10,000.
There are reasons to be on the alert for a buying opportunity:
-Historically, stocks are cheap looking out beyond current problems.
-There has never been a down year in a pre-presidential election year in 72 years.
-With “safe” places to park money yielding less than the inflation rate, stocks are the only alternative available to money managers
-November 1 kicks off the “Best Six Months” for owning stocks,* a seasonal pattern with an incredible record.
12-member SuperCommittee timeline:**
Sept. 22: Deadline for Congressional consideration of resolution of disapproval for first $900 bn tranche
of debt limit increase.
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
Congress.
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.”
George Brooks
* Stock Trader’s Almanac
**National Journal
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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.
