Day One After the Debt-Ceiling Deal

Let's assume that this week's congressional vote goes smoothly.

Does that mean markets will switch to a "Risk-on" mode – stocks up, gold down, Treasury yields also down — as a default threat in the near future has been eliminated?

Not completely, as the Treasury yields component remains uncertain.

Although the immediate risk to Treasuries is receding, future dynamics again hinge on interest rate expectations. There are chances of further tightening, but it won't be significant or long-lasting. Therefore, TMF may rise.

Gold.

The market tried to push significantly below the $1950 support level, and it didn't work out. Yes, gold prices may fluctuate more going forward, and if they do fall, I'll increase my position. However, I've been adding to my reserves at current price levels as well.

For stocks, a deal is certainly positive. Some will cover their shorts, others will try to follow the trend.

The problem is, there's no clear trend. Stocks are fluctuating up and down within a range. Right now, they’re slightly up and may even rise another 1-2% on the S&P 500 index. However, until the 4300 level is reliably breached, it's premature to talk about an uptrend.

I don't expect significant growth and am not in a rush to part with my shorts. Firstly, the golden rule of "buy the rumor, sell the news" hasn't been repealed. Secondly, the strengthening of the dollar against the euro and other currencies usually works against stocks.

Despite the debt ceiling deal, the potential for growth is limited, while the potential for a fall is rather substantial. I wouldn't be surprised to see a 10%, or even a 15%, decrease within the relatively near future. While a default isn't imminent, the economic issues haven't disappeared, meaning they will eventually rear their heads once again.

Generally, markets rise when there's widespread pessimism and a lot of short-selling. However, once shorts are covered, substantial fundamentals are necessary if growth is to be sustained. Investor complacency alone isn't enough. Moreover, it may play a cruel trick on traders and markets alike.

I believe this is exactly what we see developing now.