Technical breakdown? Or have some linguine? You decide
Editor's Note: Combining his passions for the markets, humor and food, "What's cookin' with Kenny Polcari" is a blog published twice weekly on CNBC.com. With more than 30 years of experience on Wall Street, Polcari provides insight and analysis on the markets as well as a recipe du jour. Buon Appetito!
Washington's budget wrangling finally led to a partial government shutdown and what happened around the world? Not much.
In the end, the shutdown did not produce the violent reaction that so many expected, but the market did reprice based on what it knew. It's like worrying: it gives you something to do, but does not get you anywhere.
(Read more: 800,000 out of work as US government shuts down)
Think about it. The market is off 3.2 percent (nothing to get all worked up about) over the past two weeks and in the end, a shutdown does not make a commentary on the state of the economy at all. It is more a statement of the political divisiveness that exists along with the complete lack of vision in the current class of legislators in D.C.
Yes, it may be a bit uncomfortable for some and may end up causing disruptions, but in the end, it should not destroy the momentum unless it drags on and on. Recall that the last government shutdown (Clinton administration) saw the market fall some 4 percent only to rally nearly 10 percent in the month after it ended, according to S&P Capital IQ.
U.S. stocks traded higher Tuesday because someone finally made a decision! We now know the outcome and the market is OK with that. There is some clarity. Will this "time out" allow cooler heads to prevail? The sense out of D.C. is that this could go for two weeks and if so we will then be up against the debt ceiling deadline and is THIS something to really worry about? They are lining up on both sides and making the argument.
Will Treasury Secretary Jack Lew run out of money or will we just prioritize what bills get paid out of the revenues coming in? Are politicians creating this drama for their own gain? And the world turns.
So what about the technicals?
Monday trading saw technical selling as the Dow broke below its 50-day moving average and the S&P 500 tested and ended on its 50-day moving average of 1,671. Of note is the fact that we tested that level early on, held tight, attempted to rally a bit, sold off and ended the day right at support. This confirms to some investors that the longer-term buyers are alive and well. The market needed to be reassured.
Many though may ask: Is this the beginning of a technical breakdown? Was it just end-of-quarter "adjustments" or are there real concerns over the budgetary arguments in Congress as Republicans seek to void Obamacare funding as another debt ceiling hike looms and weaker third-quarter earnings get ready to be reported?
(Read more: He said, she said on government shutdown, Obamacare)
Well, it was all of those things and will continue to be all of those things as we move through the next three weeks.
Technically the decline in the major indexes last week combined with Monday's selling has taken all the McClellan breadth indicators into bearish territory. As discussed, breadth has been weakening steadily since the Federal Reserve's September meeting, finally turning bearish on Monday.
Was the "no taper" rally the very peak of the McClellan short cycle? Is Tuesday morning's "rally" more relief (clarity) than fundamental? The concerns that have dogged the market in the last two weeks have not gone away, so tread lightly.
And now from the kitchen of Kenny Polcari, here's his recipe of the day!
Linguine with sun-dried tomato cream sauce
- Olive oil
- 4 garlic cloves, finely chopped
- 1 cup chopped drained oil-packed, sun-dried tomatoes
- 1 cup heavy cream (you can use lite or even half-and-half)
- 1 jar of roasted red peppers
- Chopped fresh basil leaves
- Freshly grated Parmesan cheese
Heat oil in heavy medium saucepan over medium heat. Add garlic and sauté 1 minute. Add tomatoes, cream, red peppers and crushed red pepper; simmer over medium heat 2 minutes. Now, using an immersion blender, puree the sauce.
Stir in ½ cup basil and simmer 1 minute longer.
Bring a pot of salted water to a rolling boil. Add pasta and cook for 8 minutes or so until al dente. Drain, always saving a mugful of pasta water. Return pasta to pot. Add sauce, cheese and ½ cup basil and toss to coat. Finally, add enough of the pasta water back to moisten if it is too dry.
—By Kenny Polcari, director of NYSE floor operations, O'Neil Securities and CNBC contributor, often appearing on "Power Lunch." The author is not compensated by CNBC for this or any other written materials found on CNBC.com.
About Kenny: Kenny has more than 30 years of experience on Wall Street. Currently director of NYSE floor operations on behalf of O'Neil Securities, he has also worked for Icap and Salomon Brothers. You can follow Kenny on Twitter @kennypolcari and visit him at kennypolcari.com.
Disclosure: The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O'Neil Securities or its affiliates.