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.