There was very little movement in the equity markets this week. The Dow Jones Industrial Avenue was essentially flat, its price range a mere 130 points from the high of the week to the low. The other major equity indexes were down by just small fractions of one percent. Volume continues to be surprisingly low, despite strong corporate profits and a growing economy offset by threatened national bankruptcies, attempted government coups, spiking oil prices and burgeoning debt loads. These factors would normally be expected to stimulate trading volume, but not now. Buyers are scarce; sellers have virtually disappeared. Typically, extended periods of calm precede sharp changes, but the price move could be in either direction. With high-frequency traders accounting for about 60% of the weak daily trading volume, the potential for short-term manipulation in either direction is high. Short-term traders don’t care about investment fundamentals. They just want market movement. This was not their favorite week.
The real action for the week was away from the equity market. Oil and other commodity prices surged. The U.S. dollar fell to its lowest level since late-2009. Gold spiked to all-time highs, and silver was even stronger than gold. Bond prices broke below support this week as yields approach their highest levels of the past three years.
As I write, the nation waits to learn whether or not the government will shut down at midnight tonight. At the very least, the political dance being done by the two parties presents the sobering prospect that many more problems lie ahead in the quest for agreement on the debt limit and future budgets.
While the week was calm for stocks, the ingredients for far more excitement are readily at hand. Short-term traders should not stray far from their computers if they have either long or short positions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.