Will the Elections Drive the Market?

Here’s what the market wants.

PRE-OPEN MARKET COMMENTS WEDNESDAY – Mid-term elections did not result in a “red wave”, but Republicans are likely to control the House. The Senate race in Georgia is tight and a run-off might be needed to determine a winner. That means control of the Senate will remain in limbo. If you live in Georgia, I feel for you. Record amounts of money will be spent on political advertising and your TV will be hijacked for another month.   

From a market standpoint, investors like a balance of power (neither party controls the White House, the Senate and the House). That outcome is likely.

I watch China closely because it is the second largest economy in the world and it has been the global growth engine for the last 20+ years. Their PPI fell 1.3% to its lowest level in 22 months. That is a sign of deflation. CPI fell to 2.1% from 2.8% the previous month. Covid-19 lockdowns continue in China and outbreaks in Beijing are at a 5-month high. Authorities are locking down neighborhoods, dampening any thoughts that restrictions could ease. Property development companies in China are in dire straits. They are going to get some government relief from a bond financing program for private developers (CNY250B). That sounds like a lot of money so I had to do the math. It’s a meaningless $35B.

Japan’s manufacturing sentiment fell to a 22 month low.

I find these little tidbits of information interesting and they provide insights into consumption. In the US car loan delinquencies hit a decade high. That sounds awful, but it is only at 1.65%. A CNBC survey showed that more than half of consumers plan to spend less this holiday. That is consistent with Jeff Bezos’ (AMZN) comments to batten down the hatches. The second Prime Day held by AMZN was a complete flop and that was a big “tell”.

Longer term swing traders need to remain sidelined until the SPY breaks the D1 down trend line and the 100-day MA. If the SPY closes above $390 on heavy volume (key word) we will buy. I am not going to trust a light volume year-end rally.

This is a day trader’s dream. We are seeing sustained intraday trends and wide ranges. If the volatility is too much for you, pick a side that you are most comfortable trading and wait your turn. Sooner or later, there will be a reversal.  While you are waiting for your turn, find stocks with RS/RW and set alerts. Wait for the current move to exhaust itself. Tiny bodied candles are one sign to look for. 1OP will tell you when the move is about to reverse. On a D1 basis the market has not moved much in the last two months. This price action tells us that buyers and sellers are battling it out and each side has the power to move the market. If the volume is light (1OVol), treat the move with caution and know that it can reverse. Set passive targets and take what the market gives you. The election results are still not known and the CPI will be released Thursday. That means the action is likely to be choppy again today.

Support is at the 50-day MA and the low from Monday. Resistance is the 100-day MA.