The republicans want to keep taxes as they are and want to cut spending. The democrats want higher taxes for the wealthy and no cuts to spending. What’s the solution to a problem such as this is what the market wants to know. Who will give in a bit? When you get a bunch of babiee, I mean politicians in the same room, the egos are so big you have to stay clear of that room. It fills up with so much nonsense you can’t stand the smell. However, these babies, I mean politicians, need to come to some understanding, or some very innocent people are going to pay a very high price for those enormous egos. If we don’t raise the debt ceiling, we will default on our debt, get downgraded, and the stock market will crash. No question about that. Not up for debate.

You have to think these folks understand the ramifications of their actions, or inactions. I’m sure they do. Maybe they just don’t care. That’s certainly possible. Their inaction thus far, their inability to negotiate with each side giving in a little bit, has the markets on shaky grounds. The stock market is nervous about the implications to come if a deal is not worked out that will allow for the debt ceiling to be raised. The higher ups that be need to recognize the harm they will create, and thus, allow themselves to work for the people, the reason they were sworn into public office. It’s amazing how fast they forget the people once they get what they wanted in the first place. POWER!! Get it right boys and girls before you do some unnecessary damage.

The market acted today as if it wanted to go higher early on. Some good earnings reports from Google Inc. (GOOG) and Citigroup, Inc. (C) sent the market higher with a nice gap up at the open. The market is looking for good reports on the earnings front, and that’s what it got last night and this morning. Would the market continue the move higher and take out the down trend line, or would it stall and fall back, was what we needed to learn. Once the politicians spoke about their current positions mentioned above, the market gave it up rather easily. The market saw that there would be no quick cure for the uncertainty, and simply gave up the gap with relative ease. Bad behavior for sure.

Day after day we’ve seen the market try to rally and day after day we see it fail. Each and every day we hear from both sides of the political fence that neither one will give up a drop for the people it affects adversely the most. Each day the rally fails. Today being no exception. It is ripe for a gap down Monday morning below major support, or those critical 50-day exponential moving averages. Poor action today on good earnings says even that isn’t helping for now. The market wants the debt ceiling problem taken care of, and until that’s accomplished, it will struggle on any upside action, and threaten to fall below key support levels across the board. Bad day for the markets today is all that can be said, and unless we see some real headway made over the weekend to cure the debt ceiling problem, we can expect bad action to occur early next week.

When studying the daily charts it appears as if the market hasn’t pulled back in an unhealthy fashion. It has pulled back gradually without too much erosion in terms of those oscillators. Good to see. We stayed very overbought on the short-term charts, thus, this behavior makes perfect sense to me. A little more time to keep price down, but don’t allow those oscillators to look badly pulling back with price. So far so good. The market is set up to try and move higher from a purely technical perspective.

However, the technicals can be overwhelmed if the wrong fundamental news hits the scene. We all know what that news is. I’ve mentioned it more times than I care to already in this letter. It seems as if the big boys did the right thing, this market would make another strong move higher. It just doesn’t have the fundamentals to back up the technicals. Until it does it’s a no go, but you have to be happy if you’re a bull knowing how things are set up technically as the right news can move this market up with no problem.

Quite often technicals are all a market needs, but in this case that’s not what’s going on, so if you’re a bull, you’re hoping for the right news to get things rocking up. If we don’t get the right news, a big swoon down in price is likely to take the oscillators with them. That would put the market in bad shape from both perspectives. That would be lights out time for the bulls. The set-ups are there for a run higher. Now we wait and see what develops from our political friends.

The financial stocks have gotten two pieces of good news in the past two days. Solid earning’s from Citigroup, Inc. C, and JPMorgan Chase & Co. (JPM). Both were up nice early on in the day, and both sold off well off the open prints as the day wore on. No one wants to own these stocks as many realize that a lot of the good news is there simply because fed Bernanke was aiding their situation. What would happen, many wonder, if the infusion of cash stops. Probably not the prettiest of pictures.

Remember, Citigroup had a 10/1 reverse split, thus, their stock is barely a 4$ stock. Nothing to get excited about here. It’s basically almost a shell. There’s not much there when left to stand on its own power. Not much power there for sure. The financial stocks remain a headache for the entire market with nothing good in sight. The debt ceiling being raised will help some, but you don’t want to get too excited about things on that front. Still best to avoid these stocks. You can only imagine the crash to come in these stocks should the debt ceiling getting raised doesn’t work out. It won’t be pretty. Until it does get passed, it’s hard to imagine anyone getting too involved with these stocks.

Bottom line is the market is being affected almost solely from political happenings, or lack thereof. We have to recognize this as a reality even though it makes me sick to think this is what’s ruling the roost. I’d rather have my teeth pulled without any sedative than to have to deal with a market being run purely on political decisions. But it is what it is. We are close to breaking down, but even if we do, the right news from the debt ceiling front would reverse things in a flash. Stay tuned for the drama as it unfolds day by day as we draw closer to the August 2nd deadline.

Peace,

Jack