Early in the day on Tuesday, small caps and secondary stocks enjoyed some relative strength. Breadth was good despite weakness in the indexes, and banking, biotech, and energy were leading.
As the day progressed, there was some nervousness about the progress of the debt ceiling negotiations. Headlines told how substantial issues were yet to be resolved. The market has not been too worried about the issue, but the closer we move to the deadline, the more we'll see nervousness.
The nervousness caused a reversal in the small-cap leadership and pushed breadth to about three gainers for every five losers. There are about 100 new 12-month highs and a similar number of news lows, which illustrates how the market is stuck in the mud until there is greater clarity about the debt ceiling.
If you aren't tired of hearing about the debt ceiling issue already, you definitely will be by the time the issue is resolved. The bears were able to push a little today, because it is pretty clear that the issue is not going to be resolved overnight. But the risk of being caught on the wrong side of a deal is substantial and should keep the bears contained.
Big cap names lagged today, which is actually a positive as it brings them in line with the broader market. We need more correlated action so that technical conditions can develop. Cooling in the "Fab Five" technology names will stop sentiment from becoming too frothy.
Tuesday was the first day there was any real worry about the debt ceiling issue, but investors are still quite confident that a deal will be done. We just have to sit and wait for it before we can do much more.
Have a good evening. I'll see you tomorrow.
