Debt Deal Close, Now What

As we wait for markets to open tomorrow, it looks pretty clear that we’ll have a strong gap up on news that we’re close to a debt ceiling agreement. At the time of this post, the futures are up over 1% and Asian markets are responding positively. That’s good news if you were small positioned long over the weekend. I assume most traders were heavily on the sidelines until we get news. This means that we’ll be faces with a dilemma in the morning – do we chase the gap or wait it out?

For tomorrow, here is my swing approach..

I will not look to chase the gap. Last week’s GDP numbers and overall cautious outlooks from companies during earnings season gives me enough reason to stay cautious. We have to keep in mind that the debt ceiling mess was nothing more than political positioning. This event is normally a non-event and I’m not sure that a 1% gap-up is sustainable without more. I’m still very concerned that our credit rating will drop to AA status… that would wipe out any debt ceiling pop and then some. However, the U.S. credit rating is probably safe in the very near term, so tomorrow I’m focusing my attention on the votes on the debt deal.

After the gap.. I’ll watch for afternoon strength or weakness. If the market is holding up, I’ll possible look to short GLD and look for stocks that are holding up relative to their peers. I really don’t have a swing watch list, but will tomorrow AFTER the vote.. so, expect one tomorrow night.

The simple message is to not get overly excited early tomorrow as a swinger. The vote MUST happen first. Don’t forget, ISM Manufacturing numbers come out tomorrow, too. Weakness there, and the trade focus will start to move away from the political news and towards the real economic influencers. Unimpressive ISM could push us red tomorrow even with the debt ceiling mess behind us. Did anyone think it wasn’t going to be raised? Start spreading your attention to the sectors with strength and measures of confidence and global growth. That’s where the swings will be.

More tomorrow night. Have a great Monday.

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