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We're kicking off the week with a familiar feeling - being a little nervous while simultaneously saying to ourselves, "There's no way."
I Don't Want To, But We Need To Talk Debt Ceiling
There's no way they won't come to a solution to the debt ceiling.
I said it to you a few times last week, the media says it, hell, the President and the Speaker of the House have said it; so why does it feel like this time it could be different?
Over the weekend, the two parties most familiar with the situation issued statements making it clear they were further from a deal than had been anticipated. This morning's futures appear to indicate the story isn't a concern yet, and there's a reason why.
At this juncture, it feels like it would be political suicide to allow the federal government to go into default in just a week or so, and the markets believe that the "players" understand that. They probably do, but there was another time they understood this same problem...
Note the last sentence of that opening paragraph from August 5, 2011.
"... in the wake of a political battle that took the country to the brink of default."
Sounds eerily like the situation that we are watching unfold right now.
For what it's worth, here's the corresponding chart of the S&P 500 after the S&P downgrade...
A few weeks later, the FOMC had an interest-rate meeting at which they decided - under Ben Bernanke - to keep the target rate in a range between 0 and 0.25 percent. That's right, money was free at this point, as the economy was still being driven by the Fed's Punch-Bowl Policies.
Today, an additional layer of difficulty is present, as the current target rate is between 5 and 5.25 percent. Not only do the rating companies like S&P have to worry about the "political battle" when assigning their ratings on the U.S. debt, they also need to worry about the skyrocketing costs associated with servicing the debt. You get the idea.
Here's What It Means For Us
I'm still operating under the expectation that the debt-ceiling situation will indeed be resolved but think the resolution comes with a certain risk afterwards.
The market is heading into that seasonally-quiet period of June that often leads to a little "drift" lower in stock prices as we head into the next earnings season, which will kick off in mid-July. For now, I see this as the risk for the market, not the debt ceiling.
That said, the breadth of the market is telling us we're still not trading on solid technical ground. Let's talk about that for a moment.
Market Breadth Remains Bad, But There Are Some Bullish Opportunities
"We're going to see a 'slingshot' trade come into play soon."
Those were my thoughts as I went through the charts of the S&P 500 and Nasdaq 100 this weekend.
The Nasdaq 100 is trading 26% higher for the year. Offhand, I'm not sure …
About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.
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