Volatility Ahead - Plunges - Rallies - Plunges

George Brooks  |

The U.S. stock-index futures indicate a  test of yesterday’s lows in early trading.

Under the right circumstances, a rally to DJIA 12,045 (S&P 500: 1278) is possible as the beginning of a volatile  basing action, which would set the stage for another  yet another failure and another plunge. We need some encouragement on the economic front to get that.

 Odds favor DJIA 11,690 (S&P 500: 1238) for today’s low point, from which it must rally, or else.

 I still see  DJIA:10,700-10,830 (S&P 500: 1150) by September/October, even DJIA 9,680 (S&P 500: 1050 if new negatives hit the market when it hits my first target.

The investment environment has changed in recent months and the stock market is frantically seeking a level that discounts these changes.

For one, there are signs that the economy is weakening more than can be
attributed to supply disruptions from Japan’s problems.  Then too, governing bodies at all levels are strapped for cash.  At a time when the U.S. government should be funding works programs for infrastructure projects, it is forced to slash outlays.

To make matters worse, it is doubtful our Congress can accomplish anything anyway with its three-way split.  A lot will depend on the composition of the “Super Committee.”  If the Republican Tea Party faction is in a position to obstruct progress, as it did with the debt default debacle, meaningful progress is a joke.

As noted in recent blogs, this is a big week for economic reports.  Fearing the worst, bloodied bulls would settle for so-so numbers, with scant hope for anything better.

With the drama of potential default behind us,  the financial press is quick to tout the prospects of another recession.

We’ve been here before. Softness in the economic numbers in mid-2010
prompted the Fed’s QE2 bond buying initiative. There’s talk of a QE3, but I
think it’s premature.

Yesterday, we got the ADP Employment Report, which  fell a little short of projections.  High energy costs and supply disruptions caused by Japan’s earthquake are still impacting Factory Orders, though at minus 0.8%  less so than earlier months.

July’s ISM Non-Manufacturing Survey indicated continued growth but at a slower rate. At52.7, it is down from February’s peak of 59.7. Today
Jobless Claims were reported at minus 1,000, and the futures immediately

George Brooks

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