Shutdown Drama: Will There Be a Market Decline or Relief Rally?
Last week saw more turbulence in global financial markets and the Dow Jones Industrial Average (NYSEARCA:DIA) as Republicans and Democrats squared off over their differences in approach to averting a government shutdown. With no compromise in sight, it appears that at least a short-lived shutdown could get underway by Tuesday morning. The bigger issue, however, still looms ahead as the U.S. government is scheduled to run out of money to pay its debts sometime in mid-October. This event would have global ramifications and, while nobody believes it will happen, the standoff in Washington sets the stage for a rocky month.
For the week, the Dow (NYSEARCA:DIA) fell 1.3 percent, while the S&P 500 (NYSEARCA:SPY) dropped 1.1 percent. The Nasdaq (NYSEARCA:QQQ) edged slightly higher with a gain of 0.2 percent for the week, while the Russell 2000 Index (NYSEARAC:IWM) closed narrowly in the green with a gain of 0.2 percent. Gold (NYSEARCA:GLD) gained 0.3 percent to close at $1336/oz., while oil (NYSEARCA:USO) fell 1.6 percent to $102.81/bbl on Friday.
On My Stock Market Radar
The chart of the Dow below shows how a double top has been formed in the 15,600-15,700 level and has fallen some 400 points over the last six trading days. The Dow has also just broken its 50-day moving average, which is widely watched by shorter term traders and the next serious level of support is at the 14,900-15,000 level, approximately 2 percent from current levels.
So as the third quarter comes to an end, we find the major markets still up significantly for the year, with the Dow up 16 percent and just 2.7 percent off recent all time highs. With October right around the corner, short term fundamental headwinds now center on the political debate in Washington, which will quickly be followed by the beginning of Q3 earnings season. The technical picture shows substantial short term weakness with “sell” signals on various indicators and the recently formed double top which will provide significant resistance if and when the fundamental problems are resolved.