Disaster Deferred for Another Day

U.S. markets rallied sharply on Wednesday as politicians in Congress apparently settled their differences by agreeing to disagree and punt the U.S. debt ceiling debate into 2014. So, once again, disaster was deferred for another day and markets rallied back to close just below all time highs even though no problems were solved nor long-term decisions made.

Investors who bought stocks during Tuesday’s slump, out of faith that the debt ceiling standoff would be resolved before the October 17 deadline, had a big payday on Wednesday – assuming they sold those shares. Those who followed the maxim, “Buy the rumor and sell the news” enjoyed some nice profits.

The Dow Jones Industrial Average (NYSEARCA:DIA) picked up 205 points to finish Wednesday’s trading session at 15,373 for a 1.36 percent advance. The S&P 500 (NYSEARCA:SPY) jumped 1.38 percent to close at 1,721. The Nasdaq 100 (NASDAQ:QQQ) surged 1.14 percent to finish at 3,281. The Russell 2000 (NYSEARCA:IWM) soared 1.19 percent to end the day at 1,092.

On London’s ICE Futures Europe Exchange, December futures for Brent crude oil advanced $1.15 (1.05 percent) to $110.57/bbl. (NYSEARCA:BNO). December gold futures rose $8.70 (0.68 percent) to $1,281.90 per ounce (NYSEARCA:GLD). Transports had the pedal to the metal as they escaped from Washington on Wednesday, with the Dow Jones Transportation Average (NYSEARCA:IYT) accelerating 1.36 percent.

In Japan, the exchange rate for the yen continued to be the dominant factor in stock market activity. Stocks made a modest advance as the yen remained at approximately 98.50 per dollar during Wednesday’s trading session in Tokyo. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (NYSEARCA:FXY). The Nikkei 225 Stock Average advanced 0.18 percent to 14,467 (NYSEARCA:EWJ).

In China, stocks sank after JPMorgan emphasized that companies involved with the Shanghai free trade zone were overbought, due to unwarranted excitement about the FTZ. Beyond that, JPM basically explained that the entire Chinese stock market was overbought. The Shanghai Composite Index sank 1.81 percent to close at 2,193 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index declined 0.46 percent to end the day at 23,228 (NYSEARCA:EWH).

In Europe, stocks managed to pull out of the red after it became apparent that the recent episode of chaos in the United States was nearing an end. The Euro STOXX 50 Index finished Wednesday’s session with a 0.36 percent advance to 3,015 – climbing further above its 50-day moving average of 2,863. Its Relative Strength Index is 71.16. Because most investors consider an RSI above 70 as an “overbought” signal, the STOXX 50 might experience a retreat (NYSEARCA:FEZ).

Technical indicators revealed that the S&P 500 remained above its 50-day moving average of 1,678 after finishing Wednesday’s session with a 1.38 percent surge to 1,721. Its Relative Strength Index jumped from 54.09 to 60.60. The MACD climbed further above the signal line, suggesting the likelihood of a continued advance.

For Wednesday, all sectors were solidly in positive territory. The financial sector led the group, with a gain of 2.10 percent.

Consumer Discretionary (NYSEARCA:XLY): +1.24 percent
Technology: (NYSEARCA:XLK): +0.96 percent
Industrials (NYSEARCA:XLI): +0.66 percent
Materials: (NYSEARCA:XLB): +1.01 percent
Energy (NYSEARCA:XLE): +1.50 percent
Financials: (NYSEARCA:XLF): +2.10 percent
Utilities (NYSEARCA:XLU): +0.91 percent
Health Care: (NYSEARCA:XLV): +2.05 percent
Consumer Staples (NYSEARCA:XLP): +1.49 percent

Bottom line: Investors who bought stocks during Tuesday’s slump on the belief that the debt ceiling issue would be resolved before the October 17 deadline had a big payday on Wednesday — assuming they sold their shares. The order of the day was, “Buy the rumor and sell the Cruz.” The major indexes are now at significant resistance levels and earnings so far have been lackluster, at best.

John Nyaradi is the author of The ETF Investing Premium Newsletter.

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