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The S & P 500 (SPX) fell below its 200-day moving
average on Tuesday after failing to rise above its 50-day moving average.
The doubly negative set of technical developments suggest that Wall Street's
recent bullishness ran into a brick wall. Aside from sellers waiting above
key technical levels, ther is plenty of political activity that suggests
that the sudden and increasingly loud opposition to President Obama's economic
policies and events inside the president's staff may have had something
to do with the loss of momentum in the market.
Chart Courtesy of StockCharts.com
There is plenty to worry about in the economy, and most people are familiar
with the laundry list, so we'll skip it here. But, it seems as if something
new is happening as the news that the White House staff is starting to
unravel, which leaked out on Monday, with a report of White House Chief
of Staff Rham Emmanuel’s possible leaving at the end of the year took the
wind out of the market’s sails.
But let’s look at the situation carefully. News that budget director Peter Orszag
is actually leaving and the debacle around General McChrystal’s comments to Rolling
Stone magazine materialized nearly simultaneously, along with the reports earlier
in the day that the White House’s foreclosure help program had more people leaving
it than the number it has actually helped to stall foreclosure. The failure of
the program was due to unrealistic expectations and guidelines issued by The
White House, according to The Wall Street Journal. It seems that when banks actually
received the information from those wishing to forestall foreclosure, few even
qualified for the program, as their personal finances were at a level that no
amount of help would allow them to make any mortgage payments, even lesser ones
than the ones that they were already delinquent in making.
More interesting, especially from a timing standpoint, was the news that Verizon
Communications Inc. Chief Executive Ivan Seidenberg, head of the influential
Business Round Table is calling the Obama team’s polices toward business “hostile”
and an impediment to “job creation” looks to be adding a new layer of concern
to the whole situation, as it seems that the warnings of the opposition during
the election are starting to come true. These guys don’t really understand how
the real world works.
To be sure, Mr. Obama had a tough Tuesday. But there is more to this than just
one day of bad news. Today’s crises tend to be the results of events and developments
that have been ongoing for much longer periods of time, sometimes months, years,
or even longer.
As we noted here yesterday, there seems to be a lack of "Donut Shop" experience
in The White House, and it's an issue that is being noticed everywhere. To recap;
On Tuesday, we wrote: "If you're going to run a donut shop, it's a good idea
to learn how to make donuts. It's good to know where the best and least expensive
materials are to be found, and which section of town actually needs a donut shop.
It's good to secure loans and to have enough backing to let the business develop.
And it helps if you make good donuts, and give good customer service. No one
at the current White House has ever run a donut shop. And if they have, they
haven't exactly put the experience to work, at least not in any way that seems
to have made its way to policy. When it comes to successful enterprises, there
is no substitute for planning, adjusting, and paying attention to detail. And
experience in the detail front is utmost in importance." In other words "No one
in the White House gets it beyond knowing that Dunkin' Donuts are good to eat.
If they would spend some time at any donut shop for a few days, they may learn
a few things about how the world really works."
Our donut shop analogy gained some momentum on Tuesday as Verizon Communications
Inc. Chief Executive Ivan Seidenberg, in a speech, noted, according to The Wall
Street Journal, that decisions made by the Obama administration "create an increasingly
hostile environment for investment and job creation." More specifically, according
to The Journal "Mr. Seidenberg used a speech at Washington's Economic Club to
unleash a list of policy grievances over taxes, trade and financial regulation."
It's clear that Mr. Seidenberg is disappointed, as he notes that he has been
invited to the White House more often during this administration than in many
others, but has yet to see that his recommendations are taken seriously, noting
that the White House is trying to "micromanage" businesses and that "by reaching
into virtually every sector of economic life, government is injecting uncertainty
into the marketplace and making it harder to raise capital and create new businesses."
For the markets, the realization that there are no donut shop owners in The White
House may have unnerved the bulls. And the overhang of sellers above the 50-day
moving average in the S & P 500 may have seized the moment. The bottom line
is that few traders want to own stocks if they believe that the White House is
in crisis. Think of it this way. The White House has few friends left in the
business community. But suddenly, suspicions about incompetence in the government
are starting to become an ugly reality, warts and all.
In fact, the cat's out of the bag. The more we (the people) see, the less we
like what we see; higher taxes, less opportunity, and zero flexibility when it
comes to moving away from ideology. And the most startling of all aspects of
the situation is the sudden rise in opposition throughout the land, in polls,
on the punditry trail, and now at the highest echelons in business. To be sure,
this has been predicted to a great degree by polls of likely voters at Rasmussen
Reports.com, where public opinion has been negative toward the White House for
months.
Yes, over the last few weeks, we have been increasingly bullish. We noted the
“W” bottom in the S & P 500. We pointed out the key resistance and support
levels that were being taken out, before the mainstream media figured it out.
And we have been steadily increasing the exposure to long positions in our stock
rating lists at www.joe-duarte.com. But to be honest, this lack of success at
the 50-day moving average has come at a time that to us looks to be a bit too
coincidental, as the dynamic in Washington is clearly changing from one of scattered
opposition to one of opposition which is suddenly more organized and whose anger
and purpose seems to be coming to a boil from multiple sources simultaneously.
In other words, this is starting to look pretty scary. It could change at the
drop of a hat. But we want to see it happen quickly.
Conclusion
There is something, to paraphrase Monty Python, "completely different" going
on here. It's not just Sarah Palin and Rush Limbaugh that are balking about White
House policy. It's poll results from the New York Times that are saying it, people
are not happy with the way the White House wants to change America. In other
words, this isn't a political issue anymore. It's becoming personal.
The statement by Mr. Seidenberg, a guy who's just trying to make money suggests
that the battle lines have been drawn and that we can expect to see increasingly
sharp criticism, and perhaps behavior changes from corporations. And there are
two major behaviors that corporations may change. One is the way they donate
money to political campaigns. And the other is the way they hire, fire, and compensate
employees.
Both behaviors are game changers, for the corporations, for the politicians who
may cut off, and for the employees who get no raise, who get cut benefits, and
for those who lose their jobs or never get hired. It's way personal now.
It's clear that the squeeze from the White House has gone beyond its chokehold
on small businesses. It seems to have crossed the line into huge businesses.
And that's significant, because big business is the financial lifeline for politicians.
In other words, the game has changed. Big money is not happy with Washington.
And that means that interesting things could happen in the up coming election
as money flows to candidates and parties could be about to change.
For us, it comes to this. Ask yourself this question; Does it make sense to hold
stocks in any other fashion than for a trade over the next two and a half years
if you suddenly found out that your worst fears about the guys running the country
are about to be realized?
We'll be on Twitter
some time today before the market closes with some updated comments.
Know when to sell and how to make money when the market falls. Get
a detailed trading plan in your pocket. Read Dr. Duarte's All
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