The President
Jeff Saut 09:15 AM

It was Eliot Janeway who coined the phrase, "When the President is in trouble, the stock market is in trouble," and clearly the President is in trouble. Those troubles began with the Benghazi scandal, escalated with the DOJ's spying on news reporter James Rosen, followed by the IRS scandal, and now we have Syria. In fact, we are even alienating two of our steadfast allies, Saudi Arabia and Israel, whose silence on our Syrian strategy has been deafening. Indeed, "When the President is in trouble, the stock market is in trouble," and Janeway's old stock market axiom came into play yesterday as the Dow's triple digit early gain evaporated causing another old Wall Street wag to exclaim, "Up mornings, and down afternoons, is not particularly good stock market action!" Verily, Monday's spiked up opening looked a lot like a massive short-covering move by the fast money crowd that was forced to cover their short-sales on the no Syrian missile strike over the weekend. After those exogenous buyers were sated, the equity markets went into a slow-motion downside drift leaving the D-J Industrials 100 points below their early morning highs, and up a mere ~24 points for the session.

However, yesterday's rally attempt should have come as no surprise because the stock market had become pretty oversold on a short-term trading basis (again), and given the fact that we experienced a 90% Downside Day last week, some kind of throwback rally was to be expected. Recall that 90% Downside Days are when 90% of the NYSE total volume traded comes in on the downside (a very brief explanation). Also recall that 90% Downside Days are typically followed by a 2 - 7 session rally attempt. So the stage was set for a rally attempt, and the "no air strike" news was the causa proxima for said attempt. As I told a number of the media yesterday, "It will be interesting to see if the equity markets can build on this early morning strength; yet, my sense is they will not because I think we are only half way through this anticipated correction. To be sure, I think the S&P 500 (SPX/1639.77) has an appointment below 1600, but above 1500, before this correction is complete. Meanwhile, investors remain extraordinarily complacent as reflected by the fact there is now $3.50 in assets invested in U.S. mutual funds and ETFs for every $1 invested in money market funds, as can be seen in the nearby chart from Jason Goepfert. I think that complacency turns to fear before this correction is over.



Click here to enlarge


No positions in stocks mentioned.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.