Charts: The S&P 500 closed at 1051, down 1%. Volume levels and the advance/decline line have been ugly today and yesterday but the two days have done little technical damage because the 6 month uptrend has been the strongest in 70 years. Support for the S&P 500 is at 1033 and resistance is 1100, a gigantic gap that leaves the technical picture in a sort of no-man’s land. It could go a long way in either direction and not change the chart outlook.
Fundamentals: Existing home sales fell 2.7%, the first decline in 5 months. The fall obviously was due to the impending expiration of the first time home buyer tax credit in late November. Along these same lines, auto sales have fallen dramatically with the expiration of the clunker subsidy. This leads us back to the ancient Keynesian debate about whether deficit fueled government stimulus programs can really end a recession. In the long run stimulus only makes matters worse and as I’ve been saying this is not a buy and hold market. Market timing is extremely difficult, nevertheless we should all be thinking about it.
Geopolitics: The President gave a good speech at the UN yesterday. He slammed Israel and hinted at reducing America’s nuclear arsenal. Russia responded by hinting it will support tougher sanctions against Iran. Obama does well in all foreign policy matters that are cheap and don’t involve shedding American blood. But day by day the Pentagon and the White House are moving apart on McChrystal’s troop request. Yesterday General Petraeus (in charge of the entire Mid-East) said that we must put extra troops in Afghanistan and VP Joe Biden said that we can sharply reduce troop levels and make up the difference by flying more drone missions over Pakistan. Petraeus is a military genius and Biden is an idiot. Maybe Obama is just playing hard to get with the Pentagon to appease liberal Democrats and once he’s made a big enough show the troop request will be granted, I hope so. The Pentagon has been caught flat-footed by the White House’s seeming turnaround on Afghanistan. If the White House has indeed reversed course the reason is the rocky prospects for healthcare reform. Liberals will go berserk if healthcare goes down in flames while the Afghan war is escalating.
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