No Budget Deal but Pizza is a Vegetable
The market declined modestly on Friday in another uneventful low volume session. The small decline on Friday added to a bearish week in which the SPX declined by nearly 4 percent and big banks declined by 5.5 percent.
The month of November hasn't been great for stocks; through Friday the SPX was down 3 percent. What's more astonishing is that volume has been extremely low.
In fact, volume has been low since August, though it briefly picked up in October during the rally. But more recently, volume has been extremely low, which is strange considering that October and November are often strong volume months.
Volume is an indicator of confidence. If the market is moving higher on high volume it indicates that investors are confident in the economy and their investments. Conversely, if the market is moving lower on high volume investors lack confidence in future growth. Over the past month, the indices have moved sideways on light volume, which basically indicates complete and utter indecision.
At this time investors have no reason to expect higher prices. But they appear unwilling to close current positions until there is a reason to exit. And Congress may give them that reason this week.
A few months ago, the President asked Congress to form a "super" committee that would rework the budget. The President established the group after the government nearly shut down this summer because politicians couldn't make budget decisions.
The atrocious behavior in Washington resulted in a downgrade of the U.S. credit rating - and another downgrade could be on the way. It is pathetic that our nation's leaders were unwilling to negotiate with each other and form a proper strategy to reduce the U.S. debt burden. The growing debt balance in America is a huge problem, but instead of confronting that obstacle, our "leaders" debated whether pizza is a vegetable. (It turns out pizza IS a vegetable.)
This week, our lovely leaders are each going to blame the other side for not compromising. No one will accept responsibility for their inaction. The market will begin to talk about another downgrade. And given that it's Thanksgiving week, which is normally a low volume week, the threat of another downgrade to the United States credit rating could stir another panic in the market.
I would be concerned if the market is headed lower only due to the failure of Congress to strike a deal. The failed leadership will not impact the economy until 2013. And it can be remedied sometime next year. But in the very near term, the lack of a deal showed the market nothing, and only confirmed what we already knew: Congress is currently incapable of reaching broad consensus.
The TradeMaster Daily Stock Alerts portfolio is mostly in cash, and there is only one position open, LQDT. Given the bearish sentiment, the portfolio should probably have a short position open, but I've been unwilling to side with the sellers since September. Today, the sellers will put 1197 support to the test. And if they can smatter that zone, I may have to take a brief bearish stance because the market could be headed another 5 percent lower.
This week the indices are closed on Thursday. While the market is open on Friday our offices will be closed. As a result, you will not receive your morning alert on either day this week. Next week it will be back to normal. Tomorrow and Wednesday will also operate as normal, too.
