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Sep 30

The Market Today 9/30/13: Shutdown

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Today is the day. Tonight at midnight, the Government will be shutdown, if they do not compromise, and come up with a solution to the debt ceiling, and funding for the Government. As of this writing, the Senate rejected a bill to provide one solution. This most likely means that the Democrats and the Republicans will not be able to put their differences aside, and work together to find a solution that solves the debt issue. The market has moved lower for seven of the last eight tradings days leading up to today. The real tell that the market wanted to move lower was not just the impending Government shutdown, but the way the market has reacted following the Fed decision to not taper! In fact, the market just moved up big on the day of the Fed decision, and has given that gain up and then some since that day! That reaction is the real tell. The question that must be asked is, will this just be just a minor pull back within the bull market, or a stronger correction? This is the $64,000 question. From a broader market perspective, looking at the chart above, the S&P wants to correct down to a much lower level. It appears to me as if the S&P may move to around the 1,550 level. The only thing that gives me pause on this, is the way the market leaders such as LNKD, CMG, PCLN, and NFLX are acting. They are trading very well considering the selling going on around them. You have to give more weight to the direction of the broader market. As I mentioned above, the market has moved down the last seven of eight days, and today broke an ascending trendline. This being said, prepare yourself for further downside, especially if the Government shutdown drags on.

Shutdown: Stocks

What gives me concern regarding the market, is the fact that it broke an ascending trend line. Trend line breaks are really good “tell’s” that a change in direction is around the corner. And we see this on the chart above. Now, I am not saying to panic here. What you want to pay attention to, is how the market reacts to this break. Should it only stay below the trend line for a few days, then bust back above it on strong volume, would negate the correction thought. However, on the flip side, if it stay’s below this, then the correction theme will have to play itself out. Unfortunately, from what I have been seeing in the news as I write this, means the shutdown will indeed happen, and last for awhile! This will most likely keep the market below the trend line, and move lower, perhaps to the 1,550 level.

Shutdown: Bonds

Another tell as far as the stock market moving lower, has been the bond market. We have seen money rotate back into the bond market, pushing the yield on the ten year treasury back from the brink of 3%, down to 2.61%! So, the decision by the Fed not to Taper, and the shutdown of the Government, has had a positive effect on the bond market. From a technical perspective, the yield’s could move down to the 2.45-50% level. Should the shutdown drag itself out, look for more money to find its way to the bond market, pushing yield’s lower!

Author Sean Rhodes is an expert in financial markets and helping you manage your money. For a no-risk consultation, check out Sean at the following link for more information and expert advice on investing in equities and holding client’s hands through the impending Government shutdown!

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