One minute we hear that the politicians are close to a debt ceiling increase deal and then another minute we hear that they are not. The stock market only cares about certainty. This afternoon, we have seen small buy programs hit the stock market throughout the trading session only to find out it was simply a false rumor that caused the intra-day spike. This tells us that the stock market is just dying to pop higher on any debt ceiling deal announcement. Here is the problem, everyone is now waiting for a debt ceiling rally. Therefore, any debt ceiling rally that the markets get could simply be short lived. Remember the old stock market adage, when everyone expects the same thing rarely will it happen.
Traders are some of the smartest people around. For example, most good experienced traders can tell when the markets are setting up to rally or break down. It still amazes me how traders do not run the world, it would be a much better place. Right now, traders are looking for a debt deal to get done, if they were not these markets would be tanking lower. So we should expect a deal of some sort to get done very soon. The big question that we must ask is, will the debt deal be a sell the news event? This is very possible after a short term rally or bounce. How many times do we see a stock surge higher after an earnings report or positive news only to come back down to earth in the next few trading days. This happens very often when everyone is expecting the good news. Right now, there are so many traders and investors expecting a debt ceiling increase that the move could be short lived. Just think about it, how could raising the debt ceiling be good for the economy? When is debt accumulation no longer a positive for the stock market? These will be the next set of questions that will be asked by traders and investors after this debt deal is settled.
Traders should simply expect more volatility over the next few weeks. No one really knows how long a debt ceiling bounce will last. What we do know is, the more people that expect a massive rally to take place after the debt ceiling announcement the more crowded and short term that rally might be.
Traders should also take note of the weakness in many of the leading steel stocks today. Stocks such as U.S. Steel Corp.(NYSE:X), AK Steel Holdings Corp.(NYSE:AKS), and Nucor Corp.(NYSE:NUE) are getting crushed today. This is not a good sign for a strong economic outlook. These stocks are not holding up at all compared to the major stock indexes. Don't expect the debt ceiling deal rally to last too long.