U.S. Market ViewGuy Conger
The first week of the government shutdown is behind us. The market has recovered most of what was lost. The media are continuing to push end of the world scenarios. I don’t see it. Yes the government is huge today compared to years past after all the Fed. continues to buy $85 billion a month in treasuries and mortgage back securities.
The real news to effect markets will be coming out this week. Earnings season starts on Tuesday with Acoa (AA) reporting after the market closes. Headlines out of Washington will still be pushed to the forefront but I expect most investors to base their decisions on earnings.
On October 17th the debt limit has to be raised or Uncle Sam is in default. This issue is more important than the current government shutdown since the ramifications are beyond the government continuing to function. The closer the country gets to the October 17th deadline without a resolution the more markets will get worried.
The big problem here is that President Obama uses situations like the debt ceiling for political gain rather than doing what is right for the country as a whole. He thinks he is the country so whatever he does is right. Naturally the Republicans don’t agree and try to prevent him from getting his way. This creates political deadlock and uncertainty in the markets.
This uncertainty coupled with low trading volume increases the chance of a bumpy ride for the market. Buyers are still conditioned to step into the void, but what happens if they sit on their hands? I am not predicting this, but be aware of the possibility.
I feel good about support at 1666. This is the trend line that has ruled the lows for the market since last November. The next strong support is in the 1630s. This area represents the 150 day moving average and the market high in May 2013. If these levels would be violated, one should consider stronger defensive measures. The 200-day moving average at around 1600 would be in play.