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#1 Chris G

Chris G

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Posted 16 October 2013 - 04:19 PM

The VRTrader.com VR Silver Newsletter -

Monday 10/14/2013

"Tools for the High Performance Trader"


LEIBOVIT FILES | by Mark Leibovit

COMMENTARY:

Stocks climbed amid morning reports indicating a new proposal has been put forth by Republicans that would end the government shutdown and avoid a Treasury default. However, the subsequent White House meeting failed to produce a concrete agreement and Senator Orrin Hatch, who took part in the meeting, said the president expressed some concern over the duration of the proposed debt limit extension. Senator Hatch also said President Obama articulated the need for new revenues to be part of a long-term deficit reduction. In the end, the two sides did not appear to be much closer to an agreement as the shutdown is set to enter its third week. Even though a solution to the deadlock has yet to be found, equities cheered the mere presence of some form of discussion.

While Wall Street was popping the corks late this week but economic data told a different story across America. U.S. consumer sentiment deteriorated in October to its weakest level in nine months. The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment fell to 75.2 in October, down from 77.5 in September. This was the lowest figure since January. While the fat cats on Wall Street are celebrating, average Americans are worried. With this dichotomy ever widening, one has to call into question whether the stock market rally is sustainable.

In the news this week were two reminders that external factors can also have sweeping effects on the markets. The first was a memo from the U.S. Airline Pilots Association detailing what appear to be, "probes, or dry runs, to test our procedures and reaction to an in-flight threat". These incidents serves as a reminder that terrorism is still alive and well. Terrorism, whether in threat or deed, wreaks havoc on markets. Especially markets already fraught with instability.
The second came from the Iranian news media, though it was largely ignored here in the US. The Iranians announced they are prepared to begin launching satellites into orbit on rockets. The payload and flight profile characteristics of such rocket launches is almost identical to that of an intercontinental ballistic missile carrying a warhead. Meanwhile, reports surfaced that the Israeli air force has been practicing long-range strike missions. Should something escalate surrounding Iran and Israel, the implications for the financial markets could be profound.

With Monday being Columbus Day, it is interesting to look at the S&P 500's average returns on this day and during the week over the last twenty years. Going back to 1993, the S&P 500 has averaged a gain of 0.83% on Columbus Day with positive returns 65% of the time. The overall average, however, is skewed by the 11.58% return that the index saw on Columbus Day in 2008. For those that don't remember the catalyst in 2008, that was the day Treasury Secretary Hank Paulson called in all the bank CEOs and gave them the bank loan offer that they weren't allowed to refuse. On a median basis, however, Columbus Day returns over the last twenty years have been less robust at +0.12%.Columbus Day week has been pretty good for bulls over the last twenty years. As shown, the S&P 500 has seen positive returns 70% of the time for an average gain of 1.04%. Here, the returns are not skewed by big gains in one year, though, as the median gain is nearly the

Looking back at Friday's economic data, the University of Michigan Consumer Sentiment Index dropped to 75.2 in the preliminary October reading from 77.5 in September. The Briefing.com consensus expected the index to fall to 74.5.

The drop in the index was most likely due to negative feedback from the government shutdown and the debate over the debt ceiling. If the government reopens soon and the debt ceiling is not breached, consumer sentiment is likely return to its September levels by the end of the month.

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