Political Risk Making Me Cautious

Yesterday's call for "either side of 1314" worked out well as a target. I was long some calls and got out in that area, but did not hedge or get short. I simply thought there could've been slightly higher prices before it reversed, and was wrong.

Credit goes out to Nicola Duke (@NicTrades) for a great call on Twitter: "I know everything is ripping but I am looking for 1312.25 to hold in $ES_F." Right she was.

The debt talks started to unravel yet again and it seemed that the market began to price in a bad GDP number. It was not priced in enough, for this morning the futures are down hard. The US dollar is also down hard vs the Swiss franc, dipping below .79. I'm trying to be long USDCHF but it's already a tough trade and may take a few tries. I've already been stopped out once.

There is a bid in the treasuries today that one would not expect if one was caught up in all the dire prognostications coming from the politicians. Everyone seems to be predicting inflation and higher interest rates. I'm not.

For the most part, the bond market is seeing right through the "give us what we want or we'll shoot this dog" approach coming out of Washington. Hank Paulson started it when he demanded a $700 billion blank check back in 2008. Essentially the same argument is being used to raise the debt ceiling. I don't buy it. The world will not end if our government is forced to get its fiscal house in order.

As for the S&P, it is currently sitting on a Fib target at 1285 (cash). There is another Fib target much lower at 1250. If this was just another day at the races, I'd be actively speculating. But with such considerable political risk, I feel like being more cautious.