Reminder: Sabrient is available to chat with Members, comments are found below each post.
Courtesy of Scott Martindale, Senior Managing Director, Sabrient
Though the Federal government avoided a debt default with an eleventh hour deal for raising the debt ceiling, investors are apparently unimpressed—especially given the uninspiring economic reports. This week, the Commerce Department reported that personal spending in June fell for the first time in two years. This was coupled with the weak ISM manufacturing report and last Friday’s weak GDP report.
Today (Wednesday), the Dow threatened to close down for the ninth day in a row. Eight days in a row hadn’t happened since October 2008, and nine days in a row hasn’t happened since 1978 (according to CNBC). But buyers arrived in the nick of time to staunch a steep selloff about an hour into the trading day, and stocks closed near their highs for the day. Technology, Telecom, Industrials, and Consumer Discretionary led the recovery, while Energy was distinctly weak. The S&P 500 hit its lowest intraday levels for 2011, but managed to finish the day above its March closing lows.
The “deal” that was finally passed and signed by the President is really no deal at all yet, although the Obama Administration is in the clear until after the 2012 election. A special committee will be appointed to determine appropriate reductions in spending, and no actual spending cuts (or more accurately, reductions in spending increases) will happen until after the 2012 election.
Many market observers, including myself, had expected a relief rally in the wake of a debt deal passage. After a brief spike first thing Monday morning to commemorate the announcement of the deal, the reality of the legislation (and its lack of substance) quickly set in, and the Dow sold off. It bounced strongly at 12,000 intraday on Monday, which also corresponded with the 200-day simple moving average, and all appeared well. But alas, the markets continued to sell off hard on Tuesday. This is despite the strong earnings reports from many companies (particularly the multinationals). In fact, earnings among S&P 500 companies are up nearly 14% over the same quarter last year.
Let’s look at the SPY chart. It held at support at 130 last Friday, and at that time I surmised that the intraday dip may have been a capitulation event among weaker bulls and a good…
