The major averages rallied on Thursday as House GOP leaders readied to meet with President Barack Obama for the first time since the start of the government shutdown, now in its 11th day. Heightened levels of volatility have been observed as headline risk swamps the markets. Leading stocks which have recently taken strong shots across the bow bounced on the news, but generally on weaker volume than the prior sell off day. Caution is still warranted, in our view, as most stocks are not in buyable positions.
House GOP leaders offered a plan to hike the debt ceiling for six weeks with no policy strings attached, but ended the meeting Thursday night without a deal to re-open the government or raise the U.S. debt limit. Futures slumped on the news but are currently trading about even to yesterday's close at the time of this writing. Both sides agreed to keep talking. Near-term, the outcome of such talks may continue to create volatility in the markets.
Conservative investors may wish to keep overnight market exposure limited in this headline risk-off environment as overnight gap ups or gap downs may be unusually common.
Yesterday's action was evidence of why short-selling with the idea of playing a prolonged bear period is not advisable at this time. Some have asked us for short "ideas," but the danger of short-selling in an environment like this is high. The longer-term trend of the market will become more clear once the current crisis has passed, and we are able to see how the market ultimately reacts to any final budget and debt-ceiling agreements.