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September 24, 2013  Tue 7:15 AM CT

SPX: SEE CHART GET CHAIN FIND STRATEGIES
Stocks are lower today, continuing their longest slide in more than a month, amid caution about the political and monetary backdrop.

S&P 500 futures fell almost one-quarter of a percent, though most of Europe is posting a gain of less than half a percent. Asia fell slightly in the overnight session, but none of the major indexes lost more than 1 percent.

The S&P 500 ripped to an all-time high last Wednesday after the Federal Reserve stunned investors by refusing to trim monetary stimulus, but the benchmark index has fallen every session since. Another negative close today would mark the SPX's first consecutive four-session decline since Aug. 19.

Sentiment has turned more cautious since as politicians in Washington prepare to fight over the budget for the next fiscal year beginning Oct. 1. Sen. Ted Cruz (R-Texas) is trying to build support for a coalition that could lead to a government shutdown in the next week. There's also likely to be a battle over raising the country's debt limit, which needs to be done by about the middle of October.

Investors will watch comments at 1 p.m. ET by Esther George, the Kansas City Fed president, who is the central bank's most hawkish policymaker. Other items on the agenda include the Case-Shiller and FHFA indexes of home prices at 9 a.m. ET and consumer confidence one hour later.

The direction of interest rates could also impact price action in the stock market because bond yields have stalled at two-year highs in the last month. Our researchLAB market scanner has shown emerging strength in utilities and real-estate investment trusts during the same time. If the reversal in bond yields continues, it could benefit housing and utilities--even if the broader market declines.

researchLAB also shows buying patterns developing in new industries such as firearms, theaters, office furniture, and engineering. Motor homes, snowmobiles, casinos, and airlines have continued earlier strength.

Foreign-exchange trading remains cautious as the safe-haven Japanese yen gains and risk currencies such as the euro ad Australian dollar weaken. Commodities are somewhat bearish, with copper, silver, and gold all down about 1 percent. But oil is little-changed, and agricultural products are higher.

In company-specific news, software company Red Hat is down about 10 percent after billings missed estimates, suggesting that future revenue will be weak. Homebuilder Lennar is also down modestly despite reporting better-than-expected quarterly results. Facebook continued to defy gravity, climbing about 2 percent after getting upgraded to "buy" at Citigroup. Applied Materials gained more than 4 percent after announcing that it would acquire Tokyo Electron in an all-stock deal.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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