US debt ceiling fight

What’s the best trade for the US debt debacle?

The US debt ceiling talks are in full flow so we take a look at how best to trade it

I’ve been thinking about which asset might be easiest to trade the US debt situation and I’m coming around to the conclusion that perhaps gold is the cleanest counter trade.

It’s good for trading both sides, the arguments and the resolution, because we’re close to a key level.

Gold technical analysis

We’ve got a potential massive triple top, and the driver of this latest rally is part of the market’s worry about whether the US will be defaulting in June. The fact we haven’t broken the 2075 level suggests the market is happy with its current pricing. Then we have the fact the players are beginning to get around a table is a positive note, even if that means days and days of posturing until the 11th hour. The record of 78 ‘can kicks’ of the debt drama in the last 70 years would favour yet another one but it’s the small risk of default that causing the market to worry.

The reason why gold might be the best option is partly down to the techs. If 2075 is the ceiling for risk pricing, a resolution will mark it as another significant top. If we do head into a default situation, the level will likely break. Therefore we have simple trades. 1 level, two ways of trading it.

I’m going to be looking at shorts into the level but with a buy reverse on a break. If we do get a break, it’s likely because of big negative news and will likely have some legs. After that I can look to the clock to gauge when to perhaps turn that to a short on a debt agreement. Conversely, if it doesn’t break but I’m short ino the level anyway, an agreement will likely give me a decent move down.

In all aspects, there’s no need to put much risk into the trade. Today’s US CPI might kick it up and through, and so maybe only a $15/20 stop is needed if that move is just a data move that reverses after.

At the end of the day, I love trades that have one clearly defined level to balance trades off of. It’s looks clean and that makes it easier to trade. Well, until the market decides to mess it all up that is..

All that remains now is timing. Do I go small now so I’ve got skin in the game, or do I wait for better levels and help from the data?