With a fifth consecutive down day now in the books, which just happens to be the first such occurrence of the year, those coming to work dressed in their bear costumes were seen rejoicing Wednesday evening. Despite the fact that the S&P 500 is off less than 2 percent (-1.898% to be exact) from its recent all-time high, those that see the glass as half empty once again believe that their time has come. After all, if the market can't produce a single up day after the "no taper" blast, things can't be in very good shape, right?
On the other side of the field, the bear opponents see things a little differently. Instead of the world coming to an end on account of the looming government shutdown or even an imminent tapering of QE, those donning the rose-colored Revo's these days suggest another view. In short, the bulls contend that the current malaise seen in the market is more likely attributed to traders taking a wait and see approach to the mess in Washington than a rush to the exits.
One analyst, who obviously has good taste in music, suggested that the Who's classic Won't Get Fooled Again is the most appropriate analogy for this market.
A Blast From the Past
Please forgive the brief trip down memory lane. But anyone growing up in the 1970's is obviously intimately familiar with this classic rock 'n roll anthem. (Most of the younger baby boomers probably still proudly own the original vinyl copy of the album.) And now that the song's refrain will likely be stuck in your head for the rest of the day, it's time to get back to the matter at hand - how the title of one of the all-time great songs fits in with the stock market.
In short, traders are not looking to get fooled again by Washington's antics. Ever since the fall of 2011, when the games the politicians played cost the U.S.A. its triple-A credit rating, traders have sold stocks in response to the fear of what might come next. Whenever the issue of the nation's debt ceiling or the government's budget is broached, the algos go into high gear, reacting violently to every word that comes out of the politician's mouths. And based on the sheer volume of commentary that emanates out of Washington each day, this has led to a great deal of volatility along the way.
Thus, the fast money has learned to sell each and every time the politicians take to the microphone and then buy 'em back (at the speed of light, of course) when the issue ultimately gets resolved. While history shows that there have been some fairly significant pullbacks surrounding these big governmental debates, the key is the market ultimately moved higher once the issue at hand moved to the back burner.
Learning A Lesson?
This time around though, it appears that traders may not be biting. In short, they don't want to get fooled again. Armed with the knowledge of the way this game has turned out over the past two-plus years, this time there doesn't appear to be any big selling pressure. There is no panic. There is no real fear. The bottom line is that everybody now understands that our elected officials will likely find a way to avert disaster (political disaster, that is) and keep the country running.
So, perhaps traders have learned a lesson. Perhaps everyone is waiting to buy the anticipated dip. Perhaps no one wants to expose new money to the violence that could occur if Washington screws the pooch this time. And perhaps the bears aren't interested in pressing their bets here. But from this man's perspective, the key is that nobody wants to get fooled again. Cue the air guitar.
Turning to this morning... Not much new to report in the early going. While Japan was higher overnight on hopes for a new tax cut, the rest of the overseas markets are in the red at this time. Here at home, traders will be hoping to avoid a sixth straight losing session and are sure to be watching the first revision to U.S. GDP, Weekly Jobless Claims, and Pending Home Sales. At this point, U.S. futures are pointing to a modestly higher open. However, the pre-market futures action has meant little of late.
Positions in stocks mentioned: none
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