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Courtesy of Scott Martindale, Senior Managing Director, Sabrient
Needless to say, the Federal debt ceiling issue is now dominating the news wires, and although investors have so far been confident that some deal would be reached, the late hour is starting to spook some. After being given a glimmer of hope last week, we learned after last Friday’s close that the debt debates had fallen apart, leaving investors squirming about what this critical week ahead of us would bring. Today, with no deal in sight, stock investors and traders made a statement that they have grown tired of the stalemate in Congress – particularly in light of disappointing Fed Beige Book and durable goods orders.
Heretofore, strong corporate earnings have trumped any negative in the economic reports and other problems around the globe. But investors have suddenly fled despite strong reports from the likes of market leaders Apple (AAPL), IBM (IBM), Microsoft (MSFT), and Coca Cola (KO) last week, and others like Cummins (CMI), Baidu (BIDU), Broadcom (BRCM), amazon.com (AMZN), Las Vegas Sands (LVS), and Boeing (BA) this week.
The Tech sector resumed its leadership position last week, as a bull market usually demands, but that goes both ways as it led to the downside in today’s (Wednesday) selloff. This time Apple (AAPL) wasn’t there to provide support. An adverse ruling from the International Trade Commission on patent infringement sent Apple back below $400. But the bigger culprit this week overall has been Industrial (IYJ), which is down almost 4% from Friday’s close to Wednesday’s close. Notably, Internet-oriented IPOs continue to garner plenty of interest. Last week it was Zillow (Z), and today it was Dunkin Brands (DNKN).
I think we’re going to get some kind of deal passed in time to stave off a crisis…and I think that Fitch, Moody’s, and S&P are highly unlikely to downgrade U.S. debt to AA (as they have said they might no matter what happens with the debt ceiling), simply because of the far-reaching ramifications of such a move.
Looking at the SPY chart, it took seven days to consolidate previous gains (from the June double-bottom rally) within a bull flag (or pennant) pattern. Although it lost support at the convergence of the 50- and 100-day simple moving averages, the lower trend line of the bull…
