I Predict A Stock Market Correction For Wednesday

A stock market correction on Wednesday is likely, given that the US Government shutdown is real

I predict that US stock markets will correct tomorrow, given that investors will likely figure out that the US Government shutdown is real and here to stay, at least for the short term. Investors certainly did not appear to believe that the shutdown actually mattered yesterday, with the S&P 500 (SPY) rising .80%, the DJIA (DIA) rising .41%, and the NASDAQ 100 (QQQ) rising 1.23%.

We certainly do live in interesting times. Yesterday’s government shutdown is the first since 1995, and over 800,000 Federal employees have been laid off because of it. Furthermore, the government shutdown comes just in time for the dreaded debt ceiling debate which needs to be addressed by October 17th in order to avoid a US credit default. Perhaps investors feel this shut down is short lived (most likely), perhaps they feel it isn’t a big deal (not as likely), or perhaps they think something magical will happen (not likely at all), but the feeling remains the same to me in that it does not appear that any side is ready to back down just yet, and investors will likely figure this out soon and bleed red over it. Meanwhile, I do not think investors were thinking (or cared) about the upticks in yesterday’s CoreLogic Home Price Index Report or the ISM Report, both of which grew slightly.

The Obamacare exchanges also opened yesterday, and reports coming in from all over the country alleged that several exchanges were crashing due to too many people trying to access them. I heard a figure on NPR driving home yesterday evening that over 1 million people across the country had already tried to sign up for exchanges by 7 PM yesterday morning, and that many more had logged on to view insurance plans without signing up. Naturally, the Health Care Sector boomed, with the Health Care Select Sector SPDR Fund ETF (XLV) rising 1.27% yesterday.

International markets are a mixed bag of highs and lows, with the the Nikkei Index having lost over 2% at time of writing, compared with the Hang Seng Index rising to just under 1%. European markets followed US markets yesterday with epic gains.

Futures markets however are all in the deep red at the time of this writing, perhaps suggesting that investors are actually starting to digest the reality of the shutdown.

From a technical perspective, the S&P 500 (SPY) literally bounced off of its 50 day moving average, indicating a STRONG floor of support, but current circumstances could definitely trap the bulls, especially considering that the S&P 500′s MACD is still in very negative territory (-1.540).

I find it especially ironic too that tomorrow’s ADP Employment report might be the only employment report released this week. Apparently the unemployment claims report is expected to be released despite the shutdown, but Friday’s Non-Farm Payrolls Report and Unemployment Report will likely not be released due to the fact that there will be no government officials to write them.

Lastly, according to Yahoo! Finance, Apple Computers (AAPL) allegedly holds 10% of all US corporate cash; I think that is just a fun fact to share with your colleagues over coffee, since talking about the government shutdown has to be getting old already.

Bottom line: I am expecting a stock market correction from yesterday’s government shut down celebration on Wall Street (also ironic), because of the likely sickness that investors will feel when reality finally does set in. With no side appearing to budge anytime soon, a closed US Government could be our new short term reality. Just wait until October 17th when our bills are due. Happy trading!

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