This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Global Macro: Markets Brace for Default or Resolution

NEW YORK (TheStreet) -- As the U.S. approaches its debt limit, financial markets are preparing for both default and resolution.

In years past, anything involving government cooperation has come down to a last-second decision. There is no reason to believe that won't happen again this year as well.

The issue is that probability is our only form of measure. That causes patterns to develop that could trade in either direction. The patterns below in major U.S. assets will be analyzed for both potential upside and downside moves.

The first chart below is of iShares Barclays 20+ Year Treasury Bond (TLT).

Treasuries raced higher in early September due to the risks of Syrian violence and potentially less-than-expected tapering.

Prices spiked as the Federal Reserve kept its stimulus program intact, but have channeled lower in a volatile range since.

Markets are now hung up on every new piece of information released from the government. When the sentiment is positive, bonds sell; when sentiment is negative, bonds are bid higher.

The current pattern on the daily chart could turn into either a bull flag or continue to channel lower.

If volatility remains elevated as politicians wait for a last-second resolution and the government remains shut down, expect Treasuries to break out higher in the next few days.

Resolution to the shutdown, however, could lead to the default premium diminishing quickly and bonds pushing lower toward yearly lows.

The next chart is of SPDR S&P 500 (SPY). Equity indices have been hurt by the debt-ceiling squabble.

The long-term trend remains higher, but a default could be disastrous for companies worldwide. Borrowing rates could spike as U.S. bonds would lose their safe-haven status.

Prices are at long-run support levels and will move either higher or lower with increased momentum depending on what happens over the next few weeks.

The default premium priced into financial assets has weighed down equities, but the removal of that weight could lead to a strong push off of support.

On the other hand, continued volatility could lead to a push lower through long-term support levels.

Financial assets are at the will of the U.S government, and politicians' decisions over the next few weeks will determine the future direction of price movement.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,098.45 +18.88 0.11%
S&P 500 2,003.37 +6.63 0.33%
NASDAQ 4,580.2710 +22.5760 0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs