Market Overview

Fasten your seat belts and remember, there is value in fear


By Danny Riley

The word “taper” is not being used as much as it used to be. As the government goes into its second week of the shutdown, the only thing we know for sure is that neither the Democrats nor the Republicans are budging.


Speaker John Boehner told ABC’s “This Week”  that “We’re not going to be able to pass a clean debt limit increase. I told the president, there’s no way we’re going to pass one.” Boehner said there were not enough votes in the House to pass a clean debt limit increase and that “the president is risking a default by not having conversation with us.” Boehner said, “My goal is not to have the United States default on its debt. My goal is to have a serious conversation about those things that are driving the deficit and driving up the debt.”

Jack Lew

On CBS’s “Face the Nation” on Sunday morning Jack Lew said the nation’s $16.7 trillion debt limit needs to be raised soon, exposing the nation to a potential default. Lew said, “I’m telling you that on the 17th, we run out of the ability to borrow, and Congress is playing with fire.” Lew want on to say that the Treasury expects to have $30 billion on hand on Oct. 17 but that the money will be exhausted quickly as the bills can run as high at $60 billion a day.

The Fed

Last week Atlanta Fed President Dennis Lockhart said the shortage of economic news “would tend to make me somewhat more cautious” in his approach to reducing the pace of the current asset purchases. With no jobs data  it makes it almost impossible for the Fed to change its current policy. Wednesday’s Fed minutes from the Sept. 17-18 meeting should shed some light on what the Fed is thinking, but it’s very unlikely the word “taper” will have any real impact during the Oct. 29-30 FOMC meeting and possibly right through the end of the year.


There was a lot of talk about how the “shutdown” doesn’t seem to be fazing the stock market that much. That is called complacency and it only adds risk. Over the last several years we have seen a lot of fighting between the Democrats and Republicans, but this fight shows how much the Republicans dislike the president and his health care policy. I said last week that if you are going to stop paying government employees, then shut off the paychecks to Congress and the rest of our elected officials and see how that works. Have them explain to their family why their check didn’t show up and why they have to cut back. Like millions of Americans that are struggling with not having enough money to pay their bills or getting a job, it’s apparent that our government officials are overlooking the needs of the public for some greater good. Well, folks, there is no greater good out there, there is no pot of gold at the end of the rainbow, just something we do not need as people or a nation, and it’s called a default. I do not believe that the politicians will take it that far, but I do have to ask, why am I even writing this? We have 10 days left to clear this up, hopefully it won’t take that long to resolve.

The Asian markets closed lower and Europe is down across the board. This week’s economic calendar includes 21 different economic releases, 9 T-bill and T-note auctions and announcements and the highlight of the week, Wednesday’s FOMC minutes. No one ever promised us a rose garden …

After Thursday’s sharp drop the S&P came roaring back up during Friday’s trade, wiping out all of the decline and helping the Dow reclaim the 15,000 mark despite the ongoing U.S. budget battle. Last week the Dow and the S&P saw their secondly weekly decline while the Nasdaq closed higher for the fifth consecutive week.

DOW 15.072 -1.22% -0.38% +15.02%
S&P 1690.50 -0.07% +0.53% +18.53%
NASDAQ 3807.75 +0.69% +0.96% +26.11%
RUSSELL 1087.25 +0.38% +0.42% + 26.95%
VIX 16.89 +0.95% +1.75% -6.27%


While the last two weeks have been filling with downside, the the overall net changes are showing the S&P is actually holding. The S&P has closed lower 9 out of the last 12 sessions, but the overall losses are not all that large considering the number of down days. Over the 12 days the 9 losing days added up to -62.8 negative handles while the 3 winning days have added up to 37 positive handles, making the overall loss over that period 25.8 handles. After all the S&P “shake and bake” of the last two weeks the S&P is still holding just below the big figure at 1700.

Our view:

The S&P is going to face another week of increased volatility. Part of trading is be able to face your fears, and right now investors are very nervous as the budget battle drags on and the debt ceiling deadline looms. The nervousness definitely showed up in the VIX last week as it neared 17, and it’s showing up in the S&P this morning. Let’s face it, we live in an ever-changing world and one that is not going to get better anytime soon. That said, that does not mean the S&P can’t go higher. What it means is what the markets have been telling us all year: At some point there is value in fear.

Mondays are tricky overall and not that good a day for stocks. One thing for sure is we are going to see a big increase in headline news this week. The 1660-1663 area is now the line in the sand with 1662 the 200-day moving average. As we have always said, the markets dislike uncertainty and there seems to be a lot of that floating around this morning. With the S&P down so much this morning, I want to get to the floor and get a feel for the price action. The Globex low at 4:00 am is 1666.50 — that’s only 4+ handles away from the 200 day MA.

NA BY338 DEBTLI G 20131004174513 Fasten your seat belts and remember, there is value in fear

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Trading Ideas


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