Tuesday, October 1, 2013

Government Shutdown (as Predicted) and Plan of Action

Two weeks ago, right after Fed's unexpected decision to hold-off on tapering, following was written at the blog:

"I think Federal Reserves' was looking ahead and they saw a real policy of a government shutdown in October, along with another long-drawn battle on debt-limit increase. That is why, they preemptive these political uncertainties by giving another doze of steroids to the market so that the impact of political stalemate does not ripple through the stock market, and consequently does not derail the nascent economic recovery.

As far as the political stalemate is concerned, this time it will be bad! On all previous occasions politicians started working on the debt-ceiling / government shutdown issues at least ~2 months in advance, with media shouting about this possibility ~3 months in advance. For example, in 2011 debt-ceiling was being discussed in the media in April/May time frame, months before the actual stock market decline in August.

But this time, it is different. Today, was the first time I saw something on the news about a potential government shut-down in a financial news outlet. This means that lawmakers are not taking this shut-down seriously with only 2 weeks left to the the shutdown. This will be followed by debt-ceiling debate, which needs to be settled in less than a month. And finally, since Republican lawmakers have been burnt by sequestration earlier this year, it is highly unlikely they will easily cooperate on this issue."

It came true tonight! But the above analysis does not say how the market should or will react. In fact, as per IPM model we defined the market trajectory in August 25 and Sept 8, 2013 updates. Market has been following the script very precisely. 

So the question is what will happen next? There is a very high potential that market will rally into the next IPM model top date. In other words, it will rise in the face of political uncertainty, because this will be the least obvious trade. However, this rise will be capped by the IPM Model top date.

IPM Model update with detailed market analysis will be sent out to subscribers today! 

1 comment:

  1. Thanks Naqvi, It will be interesting how long the shutdown will last. If it goes too long, it could kill the rally or at least bring a large pullback (buying opportunity). Interesting that you think the market will rally into IPM window - I think you may be right because as you say, it is the least obvious trade, but after the IPM window, BEWARE! We will see. Folks on are all over the map on this, but the ones that seem to be more "on the ball" are looking for at least a pop. Be careful out there, Brad


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