The Rooster Call: Pressure Building Due to Potential for Default

Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day

Pressure is building on Congress from China and Japan warning of the potential for default. Both countries are the largest holder of USA debt into the trillions. No doubt State Department officials are telling our creditors: This is just a show; that the USA has not and will not default on government debt obligations.

In the event of an actual default the landscape changes politically and economically. The “full faith and credit of the United States,” would not inspire long term trust. Debt rating agencies would immediately down grade USA debt. Funds with a charter of holding only the highest rated debt instruments would automatically dump USA bonds. Japan, China, and other sovereign nations would demand gold from Ft.Knox. A financial downward tailspin would start affecting everyone. A USA recession would ensue touching other global economies negatively.

When you think about the tremendous downside risks, you realize a USA default will not occur. We may go to the brink and peer over the cliff, but fear and common sense will stop a jump.

Today’s Reports and FED Activity

8:30AM ET – International Trade
12:25 PM ET – FED Pianalto Speaks
12:30 PM ET – FED Plosser Speaks

Reminder: We have FED minutes on Wednesday at 2PM ET.

Overnight/Pre-Market

Markets in China re-opened after a week long holiday. Copper shows incremental strength. Chinese Services PMI was slightly lower, but showing expansion. German factory orders fell in August for the second consecutive month and the news helped lower Euro. German Merchandise Trade beat consensus.

  • Euro Yen Cross broke through a channel line and bears watching. The instrument is attempting a move back into the channel. Keep watching this one.
  • Euro is flat.
  • Yen is pausing incrementally lower.
  • US Dollar Index non-directional with downward bent.
  • 30 Year bonds absolutely boring trading non-directional for ten days now.
  • ES and STOXX 50 are flat, DAX and FTSE 100 incrementally lower. ES sits near a major bench mark, the 50 simple moving average followed by institutions. Table is set for a drop here if price exceeds the low of 1662.75.
  • US Crude is successfully defending itself from a deeper drop to $98 moving side way. Yesterday, crude moved to an intraday bench mark known to hold price and rallied. Range remains great for day trading.
  • Brent crude is higher moving out of side way range.
  • Soybeans are higher on weather concerns affecting harvest.
  • Corn rises in sympathy with Soy beans. All rallies in December Corn are opportunities for selling.
  • Wheat keeps pushing up without meaningful retrenchment. It is important to remember global wheat stocks are still adequate. Furthermore, as wheat climbs, ranchers will switch to lower priced corn for feed. A pull-back is expected especially as Soybeans and Corn harvest kicks into high gear.
  • Gold and silver are quiet after rising yesterday.
  • Cotton back in a side way channel.
  • Stocks are getting nervous with downward pressure increasing. Today we start earnings release season with AA.

Day Trader Bench Marks

Intraday ES Floor Pivots – Using 24 hour electronic market hours 1800-1715 ET.

R3: 1688.75
R2: 1684.25
R1: 1675.75

Main floor pivot: 1671.25

S1: 1662.75
S2: 1658.25
S3: 1649.75

Intraday Euro Floor Pivot – Using 24 hour electronic market hours 1800-1700 ET.

R3: 1.3650
R2: 1.3622
R1: 1.3601

Main floor pivot: 1.3573

S1: 1.3552
S2: 1.3524
S3: 1.3503

Think About This…

Yesterday’s Consumer Credit report shows credit card use declined for the third consecutive month. This means USA consumers are not willing to spend as much on non-discretionary items and are continuing to fix personal balance sheets eliminating debt. The head line number for consumer credit expansion shows more car loans and student loans. However, it is the day to day purchase decisions on revolving debt, which I believe presents a better picture of the consumer. Three consecutive months of reducing card purchases signals consumers prefer spending within their means. Remember the USA consumer represents 70% of the national economy.

Separately, today I release a “beta” signals newsletter to clients designed for advanced traders who are well-versed in the Hit the Mark Trading trend and momentum style of trading. I will start with futures and shall provide a separate paper for trading options on stocks perhaps next week. Time will tell. I envision a weekly with updates as required. The difference is I will not go into the details of why the trade is expected to work assuming advanced students can read the charts on their own.

Have a great trading day!

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