On Tuesday, market players were feeling fairly confident when the market didn't sell off following President Obama's speech predicting disaster if a debt ceiling deal wasn't reached. Although the market closed a bit weak, many were optimistic since the market seemed to be so unworried.
Of course, the fact that quite a few folks were feeling complacent set the action up for some panic today when folks suddenly realized that maybe a debt deal really isn't a sure thing. What made it even worse is that there has apparently been no progress at all in finding a solution and there is unlikely to be until the very last minute.
I believe it is very unlikely that we will see a deal before the weekend. But I'm looking for some rumors -- probably tomorrow -- to trip up the bears who might be a bit overconfident now.
The action today was truly ugly and that may cause some overhang as folks sell out of disgust and dismay. The point loss was big, breadth terrible and volume heavier. The market took out support at the 50-day moving average and moved solidly into red for the quarter.
What makes this so tricky is that the market has the potential for a spike back up at any moment on positive news. It isn't going to take much to bring in the buyers, and they will be anxious to reload if we ever get this thing behind us.
Many folks really are fearful now that a deal won't be done and that we'll suffer a real calamity next week when there is a debt default and downgrade. I still believe that is highly unlikely, but the risk exists and the uncertainty is going to keep some folks on the sidelines.