Markets Respond as Washington Talks Deal

One down and one to go! The Senate approves a deal to end the budget and government shutdown, but Congress now has to approve the deal or back to the drawing board. I stated last week that if the deal took too long to get done it may not help the markets going forward, and that is still true despite today’s rally. We could see a sell on the news day in response to the deal passing, and once this deal is done it will be back to the Fed, earnings and the economy. Was today the buy the dip crowd or was this a true effort to push the markets higher? The bottom line being, the market has plenty of obstacle left that have shifted to the back burner and may be brought to a boil again.

State of the Market:

The S&P 500 index continued higher after testing on Tuesday with a move to 1717 on the day. This puts the previous high in sight and may well be the resistance point for the index as we referenced above. I like the upside if we get a solution to the budget impasse, but the downside risk is still not over. For now we will use the 1740 level as the near term target.

The NASDAQ hit a new high on Wednesday at 3834. The NASDAQ 100 index followed suit as the large cap stocks regain some of their upside. Watching to see if this holds going forward, but for now it is helping our plays on the index.

The Dow remains well above the 15,100 level for now and added 165 points today. There is still plenty of work to do for the index as we go forward. It is still the weakest link, but we will have to be patient for now as we move forward.

Chart to Watch: 

The chart below is JP Morgan. The double or triple bottom is breaking above the previous high near $54. This would complete the pattern setup and trigger an upside opportunity if there is a follow through to the buying today. What is the trigger to put the stock up 3.3% today and still have room to run higher? Earnings? Not overall, but they helped, it was the belief that the lawsuits and liability facing the company are nearing an end. If that is true it opens the way for better earnings and growth as the money being spent on legal fees could be spent on growing their business model. This is definitely one stock to watch in the financial sector moving forward.

JPM

 

Sectors to Watch:
The financials are moving higher as XLF makes solid move to the upside gaining 2% on Wednesday. BAC, C, WFC, JPM and others are pushing forward with the large banks and brokerage driving the sector higher.  Healthcare (XLV) made an equal move on the upside and hit a new high. REGN. ABT, BMY and others made solid moves to the upside to lead the sector as well. Telecom, Midcap, Small Cap and Technology are the upside leaders as well today. Everything is relative and we will have to look for follow a through on the move higher and see how investors react to the outcome of the budget and the future earnings and economic data. One day at a time.

What to Watch Tomorrow:
It all shifts to Congress and if they can put together the votes to get the budget passed. There are still some question marks, but the bigger issue will be investor response once the deal is signed. If there is a let down the selling may accelerate or be fueled further by the weakness in the economic picture and earnings. Remember there is plenty of economic data that was delayed on the government shutdown and it will add clarity or confusion to the outlook.