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September 30, 2013  Mon 7:12 AM CT

SPX: SEE CHART GET CHAIN FIND STRATEGIES
Stocks are falling today as the United States heads towards a government shutdown. Negative headlines have also emerged from Italy and China.

S&P 500 futures are down about two-thirds of a percent, while Germany and France are falling by more than a full percentage point. Asia mostly declined in the overnight session, led by a 2 percent drop in Tokyo and a 1.5 percent loss in Hong Kong. The safe-haven Japanese yen is rallying, while economically sensitive commodities like oil and copper are down.

House Republicans have refused to pass a budget for the fiscal year starting tomorrow unless the White House's health-care overhaul known as Obamacare is delayed. Battle lines hardened over the weekend, making a shutdown this week almost inevitable. In addition, a likely fight over raising the nation's debt ceiling looms in mid-October. Given the timeframe, the situation has the potential to get worse before it gets better.

In addition, five Italian ministers allied with Silvio Berlusconi resigned from the government of Enrico Letta, presenting the risk of political crisis in one of the world's most heavy indebted countries. Chinese manufacturing data also missed expectations in the overnight session, the first time in several months that economic numbers from the country have disappointed.

A mood of uncertainty was spreading even before these developments, highlighted by the Federal Reserve's surprise failure to slow bond purchases on Sept. 18. That move drove the S&P 500 to a record high, but the index has fallen steadily since.

Bonds have also been gaining since the Fed's announcement, reversing a four-month selloff prompted by signs of an improving economy. That trend of fixed-income strength, with yields falling, is continuing.

The S&P 500 may try to bounce because it's indicated to open near the 1670 level where it formed peaks in May and August. Guy Adami has also identified this price range as support. (View our daily Market Action webinars for more insights from traders such as Adami, Jon Najarian and Pete Najarian.)

Currencies are following the bearish trend today, with the euro falling and the Japanese yen gaining across the board. Commodities paint a similar picture, with oil down about 1 percent. Copper and precious metals are also lower and agricultural products are mixed.

This week features a busy agenda of economic items, including European and United States manufacturing data tomorrow and non-farm payrolls on Friday. Today's only release is the Chicago Purchasing Managers index at 9:45 a.m. ET. (See our calendar rundown)

In company-specific news, Achillion Pharmaceuticals is indicated to open down by more than 50 percent after the Food and Drug Administration refused to approve the company's experimental hepatitis C drug because of liver complications.
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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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