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The Stock Market Has a Sally Field Moment

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"You like me; you really, really like me!"

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

When the going gets tough... the tough get going! --Bluto

Yesterday afternoon, following the release of the FOMC minutes, we shared our thoughts on What They Said and What They Meant.

In short, we offered the following observations:

"It meant nothing because everyone is focused on the soap opera that is Washington, DC. As the world waits with bated breath for any sign that the debt ceiling will be pushed, which is the most likely path, that's all that matters, at least for now. In the meantime, the markets will wade through this process of price discovery.

It means everything because the Federal Reserve is knee-deep in financial engineering and if you listen closely, there is dissension -- if not confusion -- in the ranks. They must be psyched that the focus in on our dysfunctional government; it gives them every excuse to not taper until Janet Yellen settles into her seat."

We awoke this morning to find the world entirely more optimistic that the debt ceiling will get pushed. S&P (INDEXSP:.INX) and NDX (INDEXNASDAQ:NDX) futures traded 20 and 30 handles higher respectively, as both sides of the aisle indicated that they're open to a short-term increase in the debt ceiling. Investors, many of whom assumed a deal would get done because the alternative is guns and butter, cheered the news; if you listen closely, you can almost hear chants of "USA! USA!" echoing in the distance.

Of course, in the famous words of John "Bluto" Blutarsky, "Nothing is over until we decide it is!" The stock market, as a leading indicator, is pricing in the specter of resolution -- much as it priced in the possibility of default -- and underperforming fund managers can't let that happen without them. We've said it before, and we'll say it again: In periods of performance anxiety, the buyers are higher and the sellers are lower. The natural question is begged: "Has the storm passed?"

I will reiterate what I shared yesterday: The most likely outcome is that calmer heads will prevail, which is why the recent weakness was particularly orderly. Despite nascent signs of fright -- it's all a matter of perspective -- the pullbacks in the S&P and NASDAQ 100 measured less than 5%. (The Dow Jones Industrial Average (INDEXDJX:.DJI) declined 6.3%, right to the 200-day moving average, which happened to coincide with this spate of hope.)



Bulls will argue that this has given them fresh fuel for the year-end run; bears insist that we remain in the "denial" stage of our psychological continuum, and so it goes. All the while, the taste in mainstream America's mouth continues to sour as it watches our once proud nation wallow in front of the entire world.

The process of price discovery will continue with particulars from Washington driving sentiment, and earnings from corporate America jockeying for attention (JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC) report tomorrow morning). S&P 1600 (the 200-day) remains the next tangible support while S&P 1670 (the underbelly of the 11-month uptrend) and S&P 1680ish (the 50-day) provide resistance.



R.P.

Twitter: @todd_harrison

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Position in SPY.
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