2 Events that Could Derail the Shutdown Bounce

Even with government operations grinding to a halt, stocks continue to bounce around like a deranged crack addict this morning.

The broad market is staring at a sizeable drop today, potentially washing away all of the gains stashed away during yesterday’s post-shutdown bounce. If lower prices hold, today will be the S&P eighth close in the red out of the past ten trading days. Brutal…

For now, it’s pins and needles. I’ve reminded you over the past couple of days that the broad market is at an important juncture. Buyers will need to step in soon if we’re going to kick-start a fourth-quarter rally. But right now, they’re nowhere in sight…

That’s right, the debt limit debate is next on tap after all of this shutdown nonsense.

That brings me to an important question that all investors should be asking right now: What will it take to scare the market lower from here?

First, we’ll need a new catalyst. The shutdown is on. The market has already discounted this event. Now, it will need fresh news to push it lower. The way I see it, two potential events could completely derail any chance for a bounce over the next week or two…

The first is an extended shutdown. Out of all of the polls and reports I’ve seen, most people are expecting this shutdown to last just a few days or a week at most. If investors are given any indication that the shutdown could drag on beyond that time frame, we could see more spooked sellers come out of the woodwork.

Next is a potential debt default. That’s right, the debt limit debate is next on tap after all of this shutdown nonsense.

Here’s a quick update from a Bloomberg bulletin: The U.S. has started using final extraordinary measures to avoid a breach of the nation’s debt limit, Treasury Secretary Jacob J. Lew said as he pressed Congress to increase borrowing authority “immediately”…

Well, I’m not sure how “immediately” can happen when no one is at work.

As far as the markets go, you should closely watch the price reactions to any government sound bites this week. If stocks fail to bounce—even on “good” news regarding the potential end of the shutdown—we could very well see lower prices this month.

Of course, it’s virtually impossible to say what congress has up its sleeves for the next round of debates. After all, there’s no room for logic in Washington…

“Kind of odd that on the first day of a government shutdown that we have newly operated government exchanges open for business,” writes a skeptical reader regarding the introduction of the Affordable Care Act on the day of the shutdown.

Yep. Even when the government closes its doors, it still manages to grow bigger and bigger…

Regards,

Greg Guenthner
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Ed. Note: Government or no government, time marches forward, the world continues to spin, and investors continue to profit… At least, investors who know how to decipher the market’s erratic moves. That’s why Greg Guenthner writes the Rude Awakening every morning – to give readers an honest and unfiltered look at the markets and what they’re likely to do next. And this is article is only half of it. The email edition also features predictions, targets and specific numbers you’ll need to know where best to put your money. So don’t wait. Sign up for FREE, right here, and start getting all the facts.

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