Stop me if you’ve heard this before: Communication Services (XLC) and Technology (XLK) were higher, and the rest were lower yesterday. The green on the screen are the same names moving in their own orbit.

NASDAQ Illusion

We must go back to early March to find the last time there were more new highs than lows. Of course, the ratio has improved since then, but this is not the stuff of market strength.

Something must give, as the NASDAQ Composite is coming to the end of a wedge formation – a decisive move is coming.

Debt Ceiling Drama

President Biden will skip a planned trip to Papua New Guinea and Australia to pick up on the debt ceiling negotiations, which is the greatest sign thus far that the White House is taking it seriously.

A lot has been made over a worst-case scenario, which many consider the 2011 showdown. However, a deal was agreed to on August 2^nd via the Budget Control Act of 2011.

Bullet dodged, right?

Wrong!

In fact, things got prohibitively worse after the signing. Gold and bonds soared as the stock market took it on the chin.

The main reason was a downgrade of America’s long-term debt by Standard & Poor’s Ratings from AAA to AA.  It was a historic move that shook the nation to its core. I’m not sure why bonds rallied, although it’s attributed to a flight to quality and safety - the United States had just lost the veneer of excellence.

The Stock Market

The market was already in full retreat as the debt ceiling battle ensued, and the slump gained speed after the AAA downgrade.

But the pain was uneven.

Just like in 2011, the NASDAQ-100 (NDX) is the best-performing index, and small caps a disaster.  The S&P 500 stumbled before finding its footing on October 3rd, down 19.4% in that six-month stretch.

I would love to see unspent Covid-19 largess along with spending caps, but I hope it doesn’t have to be played out until the last minute.

Portfolio Approach

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Today’s Session

As we watch the debt ceiling drama playout, the banking scare might be fading.  The ‘run’ on banks has subsided.

This market could be ready to make a major breakout.

My favorite chart – hedge funds getting creamed in tech – they have to reverse course or really lay it on thick, and that hasn’t worked.

Comments

The Bank "Crisis" may appear to be fading, but what about Insurance Companies that have invested in low interest rate bonds and other investment vehicles? Paul Krueger on 5/17/2023 12:24:34 PM

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