The Stock Market's All Important Chart!

Brian Hunt's
Market Notes

CHART OF THE WEEK: THE STOCK MARKET'S ALL-IMPORTANT BOX

After plummeting 17% in just two weeks, the stock market has formed an extremely important "box." This is the idea behind our chart of the week.

The benchmark S&P 500 stock index spent much of the summer bobbing around the 1,300 level. It reached 1,353 in July. Then the summer crash arrived… and took the index as low as 1,119 (on a closing basis). It has spent the past month flopping up and down in a range between 1,119 and 1,218. Some traders refer to a trading range like this as a "box."

We see the bottom of this box – the 1,119 level – as a "line in the sand" for stocks. If this line is crossed to the downside, it's a major sign the European debt crisis is infecting the rest of the world. It's a major sign the U.S. economy is getting worse.

It's going to be an interesting October…

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Must see chart shows how U.S. debt service bill is going to skyrocket

By David Galland in Casey’s Daily Dispatch:
... The U.S. and most of the world’s major economies are flat broke. Bankrupt, actually. Forget the whole debt vs. GDP metric… Focus instead on debt + obligations vs. GDP, as that's where the scale of the problem – and the scope of the coming pain – is most apparent.
We are literally tens of trillions of dollars underwater. To return to fiscal solvency is now impossible without overt default, or the covert default of a serious inflation.

... The debt problems are now so extreme that the Republicans, Tea Partiers, and desperate Democrats now rediscovering good old fiscal sanity have no feasible way of making a dent. Even the stingiest Republicans are only talking about freezing spending at 2008 levels. For the record, that still means an annual federal budget deficit of just shy of half a trillion dollars.
Add to that approximately $150 billion in annual state budget shortfalls. And that’s before the economy is knocked sideways by the onrushing tidal wave of retiring baby boomers… or body slammed by the inevitable increase in U.S. interest rate expenses, as rates move up sharply from today's unsustainable historic lows.
The point is that, even to get back to 2008's budget deficits, will require cutting almost a trillion dollars in federal spending. And that's just for starters. Talk about a pain party.
... On surveying the political landscape, do you think that Republicans, Democrats, or even Tea Partiers will raise their hand in favor of slashing social security to the extent necessary to advert the coming currency crisis? How about Medicare? The military?
Crux Note: Each day in Casey's Daily Dispatch, David Galland brings you an informative and entertaining overview of the markets, the economy, and politics... all from his unique and often contrarian perspective. Casey's Daily Dispatch is absolutely FREE and comes right to your inbox, five times a week. To sign up, click here.
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