Whew, that was quick. The day after the election, stocks nosedive. The media were all over the news headlines, and TV talking about here comes the fiscal cliff. Did it sneak up on them, like a surprise party? No, everybody knew before the election, but it was an inconvenient topic. The same thing goes for the debt limit needing to be raised once again. Funny, I don't think either candidate mentioned it, but it was all over the news today. Hmm, wonder why that would be?
On Tuesday, none of it mattered, on Wednesday; it was all the rage, crashing stocks. The bloody tape with above-average volume did some major technical damage. The NASDAQ, Dow, and S&P 500 each set new cycle lows. All three doing setting new lows simultaneously is called confirmation. The downtrend remains intact, unfortunately.
[Related -Bank Stock Could Soar 30% After It Exits the Penalty Box]
iStock would like to be able to say the blow-off had the markings of a bottom, but no. Without blowout volume, it's just another down day. Now, there are those like Goldman Sachs that suggest the market must drop at least 15% to catch the attention of law makers to strike a grand bargain to fix the fiscal situation.
Could the market drop 15% from its peak? That would put the S&P 500 in the range of 1,258. It's possible, but the first real level of support is around 1,375, then 1,325, 1,300, and then the final backstop between 1,275 and 1,260ish. After that, and the equity markets would be barreling towards bear market territory. So, yes, 15% is possible. For now, we put the odds at no more than 20%.
Our odds are based on the likelihood that some cosmetic "grand bargain" will be reached and that the debt ceiling will be raised as quietly as Tim Geithner's request before the election.
[Related -Thinking Clearly About Forecasting]
Just as quietly, third-quarter earnings and profits perked up a little since we last covered it. Sales are up 2.46%, operating earnings up 4.43%, and as reported eps gaining 9.44% year-over-year. However, guidance for the fourth quarter remains tepid. Perhaps, public companies are just "managing expectations."
That's it for today.