If the stock market was ready to take off, it would be doing so. It never waits for everyone to hop on board. The negatives that have triggered this decline can worsen, obviously. But they can vanish quickly, a warning NOT to get too bearish.
Overhead supply looks formidable starting between DJIA 12,060 (S&P 500: 1278). Without some lightening in the uncertainties and negatives depressing stocks, it looks like the market is going to keep probing for a comfort level.
Brooksie’s Daily Stock Market blog: An edge before the open.
Monday, June 20, 2011 9:24 am EDT
S&P 500: 1271.50
Nasdaq Comp.: 2616.48
Russell 2000: 781.75
It should be no surprise that the stock market is attempting to find a level that discounts Europe’s sovereign debt issues, signs of a softening in the nation’s economy, and rising angst associated with debate in Congress over a debt reduction program going forward.
From what we are led to believe, a satisfactory resolution of the debt reduction issue will result in a decision to raise the nation’s debt ceiling, a procedure that has encountered ideological bickering in the past but nevertheless approved on 74 occasions since 1962.
I don’t think something so irresponsible as a failure NOT to raise the debt ceiling will take place. The consequences here and abroad are unknown, but can be assumed would be horrendous, with damage to CONFIDENCE in the UNITED STATES irretrievable. It would result in a U.S. default on certain obligations already assumed. These are not newly incurred obligations.
Right now, the press is not hyping the consequences of not raising the debt ceiling, probably because it doesn’t believe there is much to worry about. But as we approach the assumed deadline (August 2), the dangers may show up as headlines, as well as endless trumped up commentary in print, radio and television.
The impact of all the pumped up doom could have an impact on stock prices and could create a selling climax, ergo buying opportunity.
Will the BIG money anticipate that an accord will be reached and step in ahead of time, turning the market up before a selling climax takes place ?
Investors must be alert to either happening, and not get so discouraged they are spectators to a sharp rebound in stock prices. These are the kind of negatives that can vanish in a heartbeat.
Just because we have gotten some soft economic numbers doesn’t ensure a recession. We know from past experience, the European situation can at least be temporarily resolved, and under pressure from sources more powerful than it, Congress may cough up enough of an agreement on a debt reduction plan to enable it to raise the debt ceiling.
The decline in stock prices has discounted a lot of these negatives already.
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.