Mandate upheld

By Jani Ziedins | Intraday Analysis

Jun 28

S&P500 daily @ 12:35 EDT

The Supreme Court blindsided the markets by upholding the individual mandate and mostly keeping Obamacare intact.   This was probably the least expected outcome given the tough questions many justices were asking during oral arguments.  But this might not be all bad for the markets because this is a definitive resolution to Obamacare and virtually eliminates all uncertainty by ending the health care debate.  The market now knows what the rules are and can move past this issue.  The markets deal with bad news far better than uncertainty, so this is most likely better for the markets than reopening the health care debate.

The markets opened lower on Euro concerns and then plunged on the Court’s ruling.  But after a sharp sell-off, the markets recovered a good chunk of the Supreme Court’s plunge and is getting back to the early morning’s levels.

It is less clear on where the market is headed because we are in the middle of the previous rally’s range.  At this point we could go either way since sentiment is fairly balanced.  I still expect the market will continue lower, but it really is a coin-flip.  The last few days shook out a lot of shorts that piled in on Monday’s sharp sell-off.  We’ll see if Tuesday and Wednesday were part of a reversal higher, or simply a head-fake to shake out momentum traders.  We’ve already given back all of Wednesday’s gains and half of Tuesday.  Another few points lower and we’ll be making new lows.

Some of the biggest movers are obviously health care stocks.  But the ruling has different implications for different sectors depending on if they were helped by or hurt by Obamacare.  Insurance companies are down, but hospitals and other healthcare providers are up because they benefit from the larger pool of insured.

Stay safe

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two young children.

MCbrownshuga June 28, 2012

Good stuff,
I’m glad you stated your position in this post. Regarding the “coin flip” as to whether the market will decline or rebound…. aren’t we likely to get some more bad news soon (employment)? Isn’t it likely that Europe will continue to scare investors and we’ll see very light trading with the 4th of July next week? It seems far more likely that downward pressure will prevail. Your thoughts? Obviously, we can go up or we can go down…. but what will make us go up? Housing starts? better than expected jobless claims? Angela Merkel!!!???

    Jani Ziedins June 28, 2012

    My philosophy regarding the markets is people drive price moves, not news. The news is not nearly as important as traders reaction to the news. Sometimes bad news can trigger a rally and good news pushes us lower. This is why I focus far more on what other traders are doing than any impending headline. As I stated in previous posts, I expect us to head to the lower end of the trading range before bouncing higher. I have a fairly large short position with a fair amount of profit that I am continuing to hold. But being in the middle of the trading range I think it is not a good time to initiate a new position. As for a big move down, I don’t expect it since much of the bad news is arleady priced in. It will take new and unexpected bad news to drive us materially lower. We’re stuck in a trading range, so buy the lower end and sell the upper end.

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