Investor Education: Euphoria Wears Off, Market Reality Hits
The markets surged dramatically higher last week, following the avoidanceof the catastrophic Fiscal Cliff. A deal was struck in Washington D.C. tokeep taxes the same on those making less than $400,000 and familiesmaking less than $450,000. The SPDR S&P 500 ETF Trust(NYSEARCA:SPY) had its best week in over a year and the averageinvestor and media breathed a sigh of relief.
While last week it seemed as if the world was saved, this week the market ison pace to have its second down day in a row. The SPY is trading at$145.32, -0.60 (-0.41%). So why is the market beginning to sell after suchgreat news last week? There are multiple reasons which will be explainedbelow.
1. The market had a dramatic move to the upside of around 5%. It iscommon see a pull back after such a big move up.
2. The Fiscal Cliff deal struck in Congress only dealt with the tax side. Thespending cuts were kicked two months down the line. The spending cutsare arguably the bigger factor to the market as they will influence futuregrowth dramatically.
3. The U.S. will hit the debt ceiling in two months. This means the UnitedStates will default on the debt if the ceiling is not raised. A major battle isbrewing between Republicans and the President. The Republicans aregoing to be demanding huge spending cuts if they are to vote in favor ofincreasing the debt ceiling. This will likely be the final stand and even moreimportant to the stock market. Remember, if the debt ceiling is not raised,the most powerful country in the world would default on its debt.
4. The Federal Reserve has signaled they may stop printing money by theend of 2013. The QE policies of the Federal Reserve have arguablyinflated the stock market for the last four years. Think of this as a drugaddict (the stock market) that is addicted to drugs (QE). As the yearprogresses, this will become more and more of a worry to the markets.
The bottom line is this, it appears more and more that the pop from lastweek may be short lived. It is very possible we could see more downside asthe second Fiscal Cliff nears. I am looking to short charts that have PPTStrategy setups in them.