WASHINGTON, October 10, 2013 — The stock market broke out of a three-week funk Thursday as Washington appeared to move closer to a deal to avert a U.S. government default.
Thursday’s markets are partying hearty this morning, clinging to reports that House members will meet with President Obama to discuss fiscal matters today. That would break the familiar recent pattern where, like Achilles and Hector, both political sides stand their ground and hurl insults at each other from the far preparing for the real battle later on.
The market has been sliding since mid-September as the gridlock in Washington got investors worried that the U.S. could default on its debt and wreak havoc on financial markets. As of Wednesday the S&P 500 index had fallen 4 percent since reaching an all-time high of 1,725 on Sept. 18.
Silver lining: still no perceivable inflation. Flip side: no growth.
Hardly a reason to celebrate. So perhaps the best and most rational way for us to celebrate today is to unload a few more stock positions that have grown distasteful to us and our portfolios. Seasonally, the market should turn up later this month, revving up for the generally expected Santa Claus year-end rally to begin. We emphasize should. These days, you have to hedge pretty much everything you say.
Our short ETFs, quite profitable yesterday, have deflated this morning with the Dow up roughly 235 points at 12:45 p.m. EDT and the more representative S&P 500 up a whopping 27 points.
Typically, morning trading through around 11 a.m. has been juiced by the Fed’s fairly regular helicopter drops of fresh, printing-press capital. Snapped up by institutions (and unavailable to the little guy) these great gobs of moolah bolster the market with great regularity. That’s why Wall Street, in spite of this month’s current angst, is still up for the calendar year. Heavens knows that corporate earnings, okay but not robust, have little to do with this.
At any rate, once the morning drop is complete, markets have tended to fade almost uniformly as we move into the afternoon. So as we advised above, if you’re unhappy with any remaining positions you have, now is the time to dump them, while the markets are still happy, rather than trying to sell into the bears who are already lined up for their afternoon snack, dining on the portfolios of retail (little guy) sellers who just don’t understand how today’s version of market timing work.
If things do, in fact, stay on the upside today, which is killing our short hedge via the SDS ETF (double-short S&P 500), we’ll dump SDS for a slight profit in spite of the possibility we may need to buy it back tomorrow after someone on the Hill has a new hissy fit.
We’re slightly down on the slower moving short ETF, SH, which allegedly tracks the S&P on the negative side but which always takes its sweet time one way or another. We were up yesterday in this one, are moderately down today, but not enough to make us take off this hedge, at least not just yet.
Since we’re already approaching third quarter earnings season, it’s best to hold off new bets now until we get some facts and figures from corporate America.
So aside from a little shuffling, stay a bit cash-y now, take profits if you have them, hedge with short ETFs if you can stand it, and wait for more definitive news, such as it is, from your benevolent government in Washington. They all have only your best interests at heart.
–AP contributed to this report.
NOTE: If you need to get your portfolio in better shape, you might want to get busy today or tomorrow at the latest. Monday, October 14, the Columbus Day Holiday, is a slightly strange one, investment wise. You can trade stocks on Monday, but trades placed even today and tomorrow will have settlement delayed by one day since trades will not settle on the 14th. The 14th is also a bank holiday, meaning banks will be closed and bonds will not trade. Check with your broker if you have questions.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He currently holds small positions in SH and SDS plus a few other stocks and select bonds primarily purchased at the height of the 2008-2009 debacle.
Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.
Follow Terry on Twitter @terryp17
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