Transitioning to a Downtrend?

ESZ3 Daily 031013Good Afternoon/Morning, Friends, as the case might be. Above is a daily chart of the E-minis. You’ll observe that a test of the 61.8% Fibonacci retracement level (1662.38) is near at hand. You’ll also note that the recent low at 1666.75 has been taken out to the downside. No one really knows what will result if the debt ceiling isn’t raised by October 17, or so, but institutional investors hate uncertainty more than most. It makes sense to me that as days grind by without a resolution to the Federal government shutdown, and the debt ceiling, they will become increasingly reluctant to buy stocks. If there aren’t any buyers, the sellers will surely be in charge.

This could, of course, all turn around on a headline, and I think that the odds still favor some sort of resolution prior to the 17th. If that does come to pass, there is no law on the books, that I’m aware, that says that the E-minis can’t come roaring higher, even if the 61.8% level has been breached in the meantime. Still, we don’t have an agreement as yet, so there is more than a zero chance that one won’t be reached before the “known unknowns” occur, and perhaps even some “unknown unknowns” (a distinction made by former Defense Secretary Rumsfeld). I do expect the market to get heavier every day that goes by without a semi-plausible resolution. 

As I mentioned a couple of days ago when I began posting about this, we can have entirely different views as to whom or what is to blame and what a solution might look like. As traders, our job is to analyze the market objectively – something made much easier by familiarity with Todd Mitchell’s courses – and use that knowledge to make money. I’m not sure that we’re heading formally into a downtrending market on the daily chart, but the likelihood has certainly increased over the past three days.

Best of luck!

P.S. Less than a minute after I posted this, the New York Times reported that House Speaker Boehner indicated that he will bring a bill to the Floor to raise the debt ceiling, if necessary without a majority of Republican votes. The Speaker, of course, is a Republican, so this would be unexpected behavior. If the reporting is correct, it should be quite positive for equities, and the E-mini futures. For those interested, the story can be found at: http://www.nytimes.com/news/fiscal-crisis/2013/10/03/republicans-say-boehner-has-offered-assurances-on-default/

About the Author kevin

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