Shutdown: Day 7
Stocks dropped hard on Monday, sliding into the closing bell as the first government shutdown in 17 years entered its second week. A bipartisan compromise deal on the 2014 budget — or even a continuation of the 2013 spending levels to temporarily reopen the government — looks less and less likely as President Obama delegated to Senate Majority leader Reid and GOP House Speaker Boehner reiterated that he won’t bring a “clean” bill to the floor.
At issue is a one-year delay of Obamacare’s individual mandate as well as all those contentious taxing and spending issues that have taken Washington the brink over and over again over the last few years.
In the end, the Dow Jones Industrial Average lost 0.9% as it fell below technical support at the 15,000 level. The S&P 500 also lost 0.9% as it closed below its 50-day moving average, a level that provided support all last week.
It’s not just American investors that are growing concerned as the October 17 debt ceiling deadline approaches. Today, China’s fiancé minister demanded that the United States guarantee the safety of its Treasury bond holdings and reminded everyone that a failure to raise the debt ceiling would have global ramifications.
With 10 days to go, there is no deal on the horizon.
If we go over the debt ceiling, the first interest payment on the national debt isn’t due until the end of the month. But there are principal repayments due that means we could quickly be in a situation where the Treasury will be forced to either avoid a debt default or stop sending out Social Security checks.
This reality is shattering Wall Street’s recent complacency in all this.
And it’s also bolstering defensive, safe haven assets like, ironically, Treasury bonds. The iShares 20+ Year Treasury Bond (TLT) perked up and out of a multi-week downtrend channel today. The CBOE Volatility Index is pushing towards highs not seen since the December fiscal cliff fight and the June “OMG the Fed is gonna taper” selloff. And precious metals are coming to life again.
In fact silver (which is a more lively right now than gold) pushed up and over both its 20-day and 50-day moving averages on good volume. Multiple technical trend indicators I use, including the percentage price oscillator, are rounding higher.
This looks like tradable move.
After whistling past the fiscal graveyard last week, investors are getting spooked. Which means there are opportunities for short side profits popping up too. Sony (SNE) is a textbook example. The Japanese yen is being pressed higher — do the horror of yen-carry trading hedge funds that have shorted the yen to buy stocks — since it acts as a safe haven currency when the dollar is under pressure.
As a result, Sony dropped below its 50-day moving average and has extended below its lower Bollinger Band — an indication of downtrend initiation.
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