Reading the Markets before a Government Shutdown? 9/29/13

This blog will be a quick read of the markets as I see it now. It is hard to separate what is happening in the political arena with the threat of a Government shut down looming in front of us in a few days. I have tried to remain a-political on this blog and will continue to do so. I will remain technical in my analysis.

First I look at the chart of SPY (S&P 500) which is an exchange traded fund ETF comprising of 500 of the largest companies in the US. It is a nice blend of sectors and remains my first choice on reading what the markets are doing. SPY is starting to degrade but still holding on and is above the blue Supertrend line. So the prognosis is UP.

Next I look at the technology sector with the Q’s (QQQ). This is a technology type ETF and it also is pointed UP. In fact I observe that the Q’s are stronger is demeanor than SPY. That translates to staying long in Growth funds in my 410K.

How is the Dow Jones 30 doing? The ETF is DIA and it consists of 30 stocks, all blue chips. DIA just gave a down DN signal… hmmm. Early signs of a market breakdown perhaps? Still early but the crack has to begin somewhere. The markets have not liked the position the Tea Party advocates are taking along with Republicans to shut the Government down unless the Democrats agree to defund or delay ACA or Obama Care as it is popularly called. The markets know that Democrats will not cave in to these delaying tactics, and that sets up the stage for uncertainty - a Federal Government Shutdown. Markets do not like uncertainty in the largest economy in the world.

How negative will that be? Each time this situation has happened in the past, this ill wind has blown away in 21 days or less and expectations are that the same will happen this time. If there is even a whiff of wind that this time will be different, then watch out. Most people expect an upward draft after this is all settled, and are therefore staying on board. The market drift downwards has been very mild still, but recency data says we have had 5 out of 6 days down.

Finally, it is time to look at the bond markets. A chart on the exchange traded fund TLT (Long term Treasury bond fund) shows what we would have expected, a slight perk upwards and an UP signal. How long will that last? As I have pointed out many times in my past blogs, no one including me knows. The talking heads and writers all theorize but I will not make decisions on those theories. TLT is still terribly weak and I do not expect it to fight such strong head winds and just climb away. But it will be worthwhile for me to buy some as a hedge against the markets going down right now.

Monday I will close my Blue Chips fund (based on the DIA down signal).

I will buy TLT in my R/IRA account as a hedge against the markets slowly winding downwards. I will hold on to my Mid-Cap and Growth funds as SPY and QQQ is still long and remain upward biased. Managing transitions is tricky but sitting doing nothing and watching our portfolios erode away is worse.