The Market Laughs at Obama

The market activity could not have gone worse for the bulls yesterday. On high volume, the indices slumped lower from the open and into the close. The dollar rose, which added pressure to the energy sector and the technology sector displayed weakness as well.

Most of the big U.S. banks held up well in yesterday's decline, but those petty gains could not turn the market back around.

The worst part about yesterday's decline is that the market was supposed to finish higher. Over the weekend policy makers worked-out the framework for a successful debt deal. Many investors believed that the large decline last week was the result of a potential U.S. default. So with a default off the table it makes sense that the indices would pop right back up as investors poured into the market.

But unfortunately the debt debacle was only one of the reasons the market declined last week. Initially, the successful deal over the weekend cooked U.S. futures over 1% higher.

While that 1% was paltry compared to the 4.5% decline last week; it was a good start. And after the indices opened higher the SPX quickly popped back above 1301, which I viewed as an important price level to hold. But just as the indices looked ready to race higher, sellers took-over.

For the next three hours, on high volume, the indices shed 2%. Additionally, bonds rose to new highs. The quick reversal in stocks and bonds shows that investors have little appetite for risk and safety assets are in high demand. And the lack of a rally in the indices yesterday showed us how little the market cared about Washington and its trivial debt talks.

The change from investor sentiment was visible as sellers took out our must hold support levels and SPX 1301. With SPX back below this support level, the next stop is 1250. But this time, unlike last time, the market is much more likely to drop below it.

The bulls protected 1250 in June, but they had a falling dollar and earnings season prospects in their favor. But with second quarter earnings mostly behind us, and the dollar beginning to rise, the bulls need to find help in other places.

A large decline is back on the table now that 1301 has been broken. And much like earlier in the year, the bulls need to stay above 1250. My bullish bias is gone after yesterday's break of 1301 support, but I will not go exclusively bearish until sellers can take SPX below 1250.

Since the TradeMaster portfolio is mostly cash, the near term price activity is not a concern, but if we had more bullish exposure I would recommend selling positions or initiating hedges. I will look to buy stocks near 1250 and sell positions near 1301 since that is likely to become our short term range.

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