As the market approaches its 52 week high, we have to wonder: is a debt ceiling resolution already priced in? “Priced in” means every market participant that assumes a resolution will lead to upside has already bought all the stock they can, and there are no buyers left to push prices higher when a resolution does occur. Markets generally anticipate news, so when the news event occurs, it causes a “sell the news” reaction (kind of like a reverse self-fulfilling prophecy). I have got say that I think all the traders have positioned themselves for a resolution, but investors have not. I remember last year the budget/ government shut- down episode. Traders felt the news was already priced in, but a new wave of retail investor money came into the market after the budget extension was passed. Many stock subscription sites experienced new membership inflows around that time, so new money coming in pushed prices up further. I think the same thing could happen again. I know personally I am not fully invested and I assume not many traders nor retail investors are fully invested. So we could see a breakout to new highs once we get a resolution.

This is all purely technical, supply & demand of stocks as an asset class analysis and hypothesizing. There are serious fundamental concerns: labor and housing are among the main arguments for further upside on a fundamental basis. Jobless claims have been over 400k for 14 weeks now. Big companies like CSCO are cutting jobs. So far this has been a jobless recovery. Companies can do more with less. Many routine functions like accounting and finance can be outsourced to India. Companies like IBM even outsource sales functions like whitespace company research to India. Longer term this is a huge problem as the age of the workforce is getting near retirement age and companies will have a void of employees that possess the tribal knowledge that make up a company when baby-boomers retire. But Wall St. doesn’t care about long term fundamentals as long as this quarter is good, so neither do I. So let’s focus on what is working.

We still have themes that are working- high yielding utilities, REITs, and energy stocks are working. Even the financials have had a major reversal in the past week. Many of the leaders that started the move up a few weeks ago are now rolling over, so we have to avoid them and switch to what is. XOM is working, so is CVX. The lumber names, like WY are working- Japan is rebuilding- and we see steel stocks like NUE have bottomed. However, we have got to assume that we are range bound between 1250 and 1350 on the S&P. Until we break out of that range, we have to sell at the upper end of that range. We are at the upper end so we should be raising cash. This is what worries me- too many traders will have too much cash, and in the event of a decisive break above 1350, there will be plenty of fuel to add to the fire and we will get a major move up very quickly. The best thing investors can do is buy safety stocks- my favorites are NLY, WIN, KMP, SO, AGL, and LINE.