When the outlook for today was for the market direction to be soft I had no idea that the Treasury Department would step in and help drive the market direction even lower with their comment that that a failure to raise the debt ceiling could lead to a financial crisis and recession even more damaging than the financial crisis of 2008. They called the failure of the US to pay its obligations if the debt limit was not raised as “unprecedented” and indicated it has the “potential to be catastrophic”. While I didn’t think anyone doubted that such a failure would indeed make the 2008 financial crisis seem like a picnic I also found it some amusing that the Treasury Department sought to get involved in what is obviously a political fight. Their report went on to say that credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket and all of this would “reverberate around the world”.
Market Direction Intraday
Obviously while a lot of investors felt that the likelihood of a default is just not in the cards, the fact that the Treasury department took it upon themselves to issue such a “wake-up” call to Congress caught investors a bit by surprise. They sold off the market from the outset. By 12:00 PM (point A) the S&P was pushing to 1670.36 a good 10 points below 1680, the support level I have been discussing for several weeks now. You can see in the 1 minute chart below that the 1680 level was reached by 10:30 and then the market stayed sideways for a good hour before finally breaking decisively through.
A short rally faltered quickly but the second pullback (point B) was not as low as point A. I sold my Spy Put Options puts at point B following reports that Boehner is determined to prevent such a default.
The market direction turned back up and returned to 1680 level but I am not expecting the market to hold here. Even with the report that House Speaker John Boehner told colleagues he’s determined to prevent a federal default as the Treasury Department warned that such a default would have potentially catastrophic effects I will probably be picking up more Spy Put Options in the afternoon simple because with 1680 broken so deeply there will probably be another test back below 1680.
Debt Ceiling Outlook
Personally I am not expecting a default of any kind and I don’t believe it was in fact “in the cards”. But perhaps the Treasury Department thought they needed to impress upon Congress that this needs their full attention. Whatever the case I have had a profitable day.
Deere Stock
A gentleman I am mentoring brought to my attention Deere Stock, which is not a regular stock on my trading list but I like the stock here. This afternoon just about noon with the stock down to $82 I sold 5 naked puts for .51 cents for Oct 19 expiry. A little better than half a percent for a couple of weeks I think makes this a solid trade.
Market Direction Outlook Into The Close
I am expecting the overall market direction weakness to continue. I have done a few Put Selling trades today which I will post. Any actual deal on the debt ceiling will rally the market. How long and how far any kind of rally will last or will be is tough to call. Until then though look for the weakness and gyrations to continue.
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