The Impact of the Government Shutdown on Traders

And so the US government starts shutting down. A new report published in Roll Call gives Congress a 10% approval rating. I am reminded of the Beatles song, “Come Together.” What’s the lyric? Come together right now.

Trader reaction to US government shut down is difficult to gauge. Trend and momentum in the S&P 500 futures are strong enough to suggest sideways to downward action, but nothing dramatic. As we know, the global footprint of money is not chasing commodities, not chasing safety with meaningful strength, and this only leaves equity markets.

Therefore, we should keep our mind open to the idea once the circus is over…and the budget impasse will resolve…trend and momentum should once again carry forth in equities. I am thinking of a sailboat on a journey where suddenly the wind fades and the sailboat drifts until another gust continues the journey.

Obviously, markets could produce a sharp drop. Another event is likely needed to see such a drop. Let’s consider any pre-earnings release announcements lowering earnings expectations as a potential event. Beyond this, I think trading individual stocks is risky in the present environment. Hedge funds are capable of targeting individual stocks or sectors more easily as trading volume dries up due to uncertainty.

We have ridden through such times before. I remember a trade a few years ago in a cloud computing stock and without warning, the entire sector was trashed. Hedge funds are a lot like chickens spotting a morsel. They all pile on a buy or sell asking questions later as they attempt to ride a momentum move. Crowd behavior. Cramer’s Confessions of a Street Addict talks about how the rumor mill is worked in trading.

Our DEC Corn trade surged yesterday thanks to an excellent bearish crop report. This trade is a prime example of trading technical analysis with an eye on fundamentals. Corn hit a 3-year low. Marvelous! We expected this remember? Don’t be surprised. Trust your analysis. This educational trade called in advance for benefit of practicing our methodology has made over $1000. We have already banked $3,400 on an earlier Corn trade. Any time grains make a twenty-cent move is worth taking a profit and leaving runners or at least tightening protective stops. I am looking for 4.34 then 4.25 for December corn as targets based on the charts.

I am researching wheat today in my spare time today. This means I am fishing for a trade with the idea last week’s wheat run up shall pull back for potential rise. The question I ask is have massive global wheat stocks drawn down, in addition to new plantings in jeopardy caused reason for last weeks’ rally or is this just another blip in a down trend listless market?

Think About This…

I sent you an email last night discussing profits in CVX and TIF asking the question, “How much is enough or how good does it have to get?” As humans we tend to want someone to tell us exactly what to do showing us the way as we learn something new. Later the mind does something completely different and this causes frustration and anxiety in your trading mind.

May I suggest you take profits at predetermined benchmarks and free your mind from second-guessing? When you have taken the bulk of profits in a credit spread, do you really have to hang on for more? And if so…why? The field is littered with those who held on for one more buck…just a little more.

Have a great trading day!

To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.