Red Herrings

We've gone from fixating about Syria and tapering to the government shutdown and debt ceiling. I've been saying here starting with the outbreak of the pig flu, that these types of one offs never end up derailing the market's current LT trend. They may cause ST declines but that's about it. Even the 911 attack which occurred in the midst of a major bear market only had a temporary impact as the market was able to recover those losses and more in 3 months. The reason why these things tend not to be important is because they don't have any significant or lasting impact on the economy and any economic contraction they may cause will quickly be recovered once the issue is resolved.  Also, fear motivates the authorities to take action and diffuse the problem especially in this post 2008 world.  We've had so many of these types of worries in the past few years and all of them turned out to be Red Herrings.

After the no taper rally the market got overbought again and we saw quite a large surge in inflows. That to me is the main reason we have seen the market pull back for when you have such a situation, the market becomes vulnerable no matter what the news flow is like. If history is any guide, pessimism will be quick to build in the coming days/weeks and the market will be in a better condition to make a rally attempt. Let's keep in mind here folks that the market has had one hell of a run this year and so some sort of a correction/consolidation would not be unusual. Of course, we never want to get complacent about such things, but like I've been saying for some time, the classic conditions for a bull market peak have not been seen and until such happens, be skeptical of the bear case but be mindful that scary corrections can indeed still occur.