Stocks Positively Reverse & Close Above Resistance
MONDAY-WEDNESDAY’S ACTION: Gov’t Shutdown Drags On
Stocks fell on Monday after both sides of the isle made it clear on the Sunday talk shows that they still were not ready to make a deal. Republican House Speaker John Boehner made it clear that he did not have a majority to pass a bill to raise the $16.7 trillion borrowing limit without spending cut conditions attached. Speaking to ABC television over the weekend, he said the U.S. was on the path to a credit default. If the US defaults, this will be the first default in history. The latest projections show that for Q3, S&P 500 earnings are expected to grow by +3.12% vs the same Q in 2012.
Stocks fell hard on Tuesday as the nonsense in DC continued. A notable difference on Tuesday was that a slew of leading stocks got smacked. Up until Tuesday, the leaders acted very well while the rest of the market was under pressure. It will be very interesting to see how this plays out. Obama held a press conference and, as expected, blamed the GOP for not doing their job. Separately, Treasury Secretary Jack Lew said that the country may run out of money sooner than people expect which hurt confidence.
Stocks positively reversed on Wednesday (opened lower but closed higher), helping the market bounce from deeply oversold levels. Obama officially nominated Federal Reserve Vice Chair Janet Yellen to replace Ben Bernanke as the chairman of the Fed. Yellen is believed to be more dovish on monetary policy than Bernanke (hard to believe, we know) which makes fans of QE very happy. The minutes from the Fed’s September meeting were released and showed the decision not to taper was a “relatively close call.” Obama made plans to talk with Republican lawmakers to help resolve the budget deadlock.
THURSDAY & FRIDAY’S ACTION: Stocks Bounce
Stocks soared on Thursday after the ice broke between the Dems and the GOP. Investors quickly became optimistic that a deal would get done to end the budget gridlock. House Speaker John Boehner said the GOP would offer a temporary increase in the debt ceiling in return for discussions with the Dems on other budget and deficit issues. The Obama administration said they are willing to look at the proposal to extend the debt ceiling but insist that lawmakers must end the government shutdown as well. The Dow soared 320 points on the news.
MARKET OUTLOOK: SPX Jumps Above Resistance
The market is bouncing after yet another relatively short pullback. Remember, we focus more on how stocks react to the news than the news itself. We will see what happens in D.C. and then look forward to earnings season. Please note that our goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae of changing labels on the market status very often. As always, keep your losses small and never argue with the tape.