Loose Cannons And Rally Potential

The clock is ticking . . . on a breakdown. The longer the government is shut down without the market plummeting, the greater the chances of a rally.

Yesterday the S&P got to a lower low but did so on lower volume. It has been its custom for many moons to go higher on lighter volume, so when it does so to the downside it's important to take note.

It was a surprising crap out given the immediate bounce off the open, but with -1200 ticks in the first minutes of trading, the expectation was a re-test. Today 1670.36 and 1691.94 are big targets. And being Tuesday, the potential for a turnaround is there. So while it's encouraging to see futures mildly positive, once again it is the regular session that may tell the tale.

The market can still collapse, but getting above 91.94 today would send a big signal that it's not ready. Any hesitation around 1670 would also suggest a potential reversal higher. Only a strong impulsive thrust through 1660 would negate this view.

The Bloomberg IPO index is once again 2X the performance of the S&P, reaching levels last seen in 2007 and 2011, so if things feel a little frothy, they are. But they can get frothier.

On the ominous side, Zero Hedge noted that the 10/24/13 T-Bill yield has risen 6bps higher to 22.5bps this morning signaling that short-term risk of a missed payment is rising. For the first time on record the yield on short-term Treasury-Bills is above the yield on US interbank loans.

T-Bills are supposed to be "risk-free" investments. Not so with this administration. The market is treating O & Company like a bunch of loose cannons, and I agree.