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The Three Issues

October 5, 2011 – 5:08 pm

The market decided yesterday to rally the last hour with a 500 point one day swing in prices. This is why it is so very difficult to look at the market on a day to day basis.

More important is the hint in the economic statistics this week so far that we are not falling into another recession. However, even that may not be enough to set us on a path of stock market recovery.

There are three main catalysts that have the potential to move not only our stock market but our economy back on to a firmer growth path. We have written often about the world economy and its importance. Two of the three issues are outside our borders. One is the European crisis. Until they deal with it in a much more aggressive way, the situation is not going to improve. The other is China. They have been fighting inflation by squeezing liquidity for over a year. That appears to have worked but now the fear is that they have gone too far and will slow their growth further.

Finally, in the U.S. it is the debt debate.

One or more of these issues needs resolution before our economy and the stock market can move to firmer footing. As always the stock market will lead the way. It will begin to rally with hints of resolution not necessarily with the fact of resolution.

Good Trading
Steve Peasley

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