Until today, the market didn’t seem to be reacting too badly to the standoff taking place in Washington, regarding the raising of the debt ceiling and the possible downgrading of U.S. government debt.
In fact, some were saying that our elected representatives were taking their own sweet time, partly because stocks hadn’t reacted very negatively to what might turn out to be a major problem. After today, that passive attitude may change. The stock market started on the downside and just continued on down all day. By day’s end, some serious technical and psychological damage had been done.
This type of swift reversal move — dictated by event-driven factors — such as we have had over the past three days, coming as it does when the indicators were generally bullish, can create an extremely volatile environment. For example, if an agreement of sorts is reached, a swift rally could follow (although it probably wouldn’t have a lot of follow-through).
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