Will the Stock Market Trade Full Circle?

By Todd Harrison  OCT 08, 2013 8:20 AM

The more things change, the more they stay the same.


Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

Well the joint was jumpin,' going 'round and 'round
Hey now realin' and a rockin,' what a crazy sound

--Grateful Dead
I remember the end of April as if it were yesterday; I was readying for a month-end hip replacement and the stock market was at an inflection point.  
As bulls fingered the cup-and-handle pattern that pointed higher, and bears kept close tabs on a potential double top, the market showed us the way and rallied 5% before retesting that level and subsequently working higher still.

Fast-forward six months; equities, a shade from all-time highs, are again the judge and jury in the "What Matters Now" sweepstakes. 
Following the "no taper" knee-jerk rally a few weeks ago, stocks have been ground lower as the tape weighed the implications of the government shutdown. The primary concern is the potential default of US credit, and while most everyone views that likelihood to be nonexistent, the "tail" is being priced into the marketplace.

While I, too, believe the US will sidestep the worst-case —it's not 100% when the human condition is involved—two elements remain unknown.  The first is what will happen if politicians continue to drag their feet and use the debt ceiling as a weapon—the longer this lasts, the more real it becomes—and the second is how unintended consequences take root, be it a credit downgrade or actions taken by foreign holders of our debt.
Bringing this discussion full circle, the S&P (INDEXSP:.INX) 200-day moving average currently resides near S&P 1600—the very same level from which we broke out in May.  While history doesn't always repeat, it sometimes rhymes, and should S&P 1680 (the 50-day) and S&P 1660 (the 11-month-old trend line) give way, the 200-day would beckon loudly as the next level of lore.

Random Thoughts:

Twitter: @todd_harrison

Position in SPY.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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