Since breaking and closing above 1350 on July 7th, the SPX has had a bit of a rough ride, giving back about 40% of the move off of the June bottom. The same reasons why we were selling off in May/June were the excuses for last week’s weakness……Here is the thing……If guys want to sell the market because of the impending “Armageddon” if Washington muffs a debt deal, then fine…..but I would be very careful of pressing the market here for that reason alone…..WE WILL HAVE A RESOLUTION TO THIS SOON, and the way I see it most potential outcomes lead to short squeezes.
Corporate Earnings, our economic recovery (or lack thereof) and the debt situation in Europe will be the drivers for the equity markets into year-end, and when we get an acceptable compromise to avoid U.S. default near term we can start to focus again on the health of our recovery.
As we get deeper into Q2 earnings this week and get a better sense 2nd half outlook, then I think you start positioning for a test of last months lows or a move back to the May highs.
Even as the ratings agencies threaten downgrades of our debt, our equity market’s remain a flight to quality as one of 2 of the only major markets up on the year (aside from Germany).
I am keeping a wait and see appoach and not trying to press the debt ceiling issue as I did the Greek austerity vote……WHY? because it is a semi-rigged game and politicians will do what they need to do to avoid crisis as we head closer and closer to important campaign period…..
Single stocks are moving around on earnings so far, so look to the options market to protect gains, add yield and consider stock replacement when appropriate in this potentially volatile period.
This morning, Europe is down across the board, with the DAX down about 1%, S&P futures are down 60 bps, while the dollar and gold our up.
I want to be short here, but want to put them out on a rally, the SPX is kind of in no mans land with a close Friday right at 50 and 100 day moving averages…..1280 or so at about the 200 day seems like a reasonable test level but who knows……we are clearly basing between 1250 and 1350 and this may take some time to resolve itself, I don’t want to be chasing it up and down.
[caption id="attachment_3308" align="aligncenter" width="300" caption="1 YR SPX chart Provided By Bloomberg LP"]
[/caption]