• The Government Is Shutdown. Now What Do You Do?

    by  • October 3, 2013 9:45 am • Breaking News, Broad Market Analysis, Quick Hits • 2 Comments

    Well, if history is any guide – don’t worry.  My pal Jeff Cox over at CNBC.com wrote a great piece on how the market does during shutdowns.  Turns out, they are actually rather bullish.  Be sure to read Jeff’s takeaways, but here is a great chart with all the data.

    Next, Todd Salamone here at Schaeffer’s did a great job looking at the sentiment now versus what it looked like right ahead of Fiscal Cliff.  He found there is actually more fear now than back then.

    Now something else that just happened is short interest surged the past two weeks.  According to the latest data, there was a surge of 3.72% in SPX component short interest.  This is the fourth largest surge since 2012!  Again, these shorts could produce future buying pressure if the bearish scenarios don’t play out.

    I’ve been saying all year that small cap leadership is a good sign.  Well, with the Russell 2000 right near all-time highs and the Nasdaq around 13 year highs, those could be clues that a big fourth quarter rally could be coming.  Remember, right ahead of fiscal cliff small caps did great and broke out early in January.  Then of course we had one of the better starts to a year in a generation.  Are small caps once again saying follow price and don’t worry about the news?

    Lastly, here’s a chart we just completed.

    Two of the most bullish years ever were ’54 and ’95.  So far, small caps are matching those two years pretty well.  Who really knows if this will continue, but I do think the odds continue to favor a good fourth quarter.



    2 Responses to The Government Is Shutdown. Now What Do You Do?

    1. Rick Falls
      October 4, 2013 10:41 am at 10:41 am

      These charts (to me) point out the correlation and a stark contrast between varying administrations and their government policies. The years that did well after shut-downs were the years where we had fiscally responsible and business friendly policies in place, and the years that did not fare so well were much like what we see now in 2013.

      The fear that we see today is realistically justified, by a lack of sensible policy, and a blatant lack of effective solutions for problems like employment that average Americans are concerned with. Nor are there any good government solutions in place, for the overall economy and business growth in general, the policies of the day seem to be skewed to prop up a “certain few” instead.

      When we come through the latest dysfunction, we’ll still be largely where we are, and we won’t be in any better shape economically, because there is no “light at the end of the tunnel” yet (other than a brief government shutdown), and therefore the optimism that comes from “Good Policy” (if there is such a thing), that may have propelled the markets forward in the past, is currently Missing in action.

      Small caps are usually a great indicator of the market overall and should continually be watched for clues to market direction and trades that arise because of it, but I can’t help but wonder how long their performance can last in the face of generally bad business policies.

      • Ryan Detrick, CMT
        October 7, 2013 11:01 am at 11:01 am

        Thanks for the great comments, Rick.

        I try not to put politics into my trading views. The market will do whatever it wants and I’m not sure how much it matters. Eventually it’ll matter, but I’m not smart enough to know when.

        Lots of reasons to be bearish past few years, yet price has been strong. Simple as that.

        And I fully agree on small caps. They have been strong and that is a reason to be open to big 4Q.

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