NEW YORK (
TheStreet) - As the trading week comes to an end, politicians in Washington have yet to complete a concrete deal to raise the debt ceiling and reopen the government.
The political squabbling is reminiscent of the summer of 2011 when markets consolidated at yearly highs and then sold off sharply due to the gridlock in Washington.
The chart below of the
SPDR S&P 500
(SPY) shows the similarities between now and then.
Prices never move in the exact same manner they did in the past, but the market operates in waves. Any trajectory will have intermediate up and down moves.
To help analyze what phase of the move we are in -- either an intermediate advance or decline -- the MACD indicator below the price section on the chart is used. MACD stands for Moving Average Convergence-Divergence indicator. It represents specified moving averages and whether they are showing a bullish or bearish signal
In 2011, the indicator began to break down as equities reached a top in the spring. It continued to fall as prices developed a head-and-shoulders reversal pattern within the consolidation.
The breaking point was when polarization in Washington reached its peak and the debt-ceiling debate prompted a credit downgrade. Standard and Poor's downgraded the U.S. credit rating, which sent shock waves through markets. The correction was swift, and it took almost a full calendar year to return to those August highs.
The government remains just as polarized this year, but politicians look even more disinterested in financial market consequences this time around.
The MACD oscillator began to break down at the beginning of the summer and U.S. equities have begun to consolidate. Although the set-up does not guarantee a repeat of the 2011 correction, the pattern resemblance is something to consider.
Monetary policy remains accommodative, which is a positive, but with fiscal policy acting more as a detriment than an aide at this point, a correction may be justified.
In 2011, market participants blamed politicians for the drop in prices, and this time, blame also lies on Washington.
At the time of publication the author had no position in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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