Election Retrospective
What a day! in attempt to understand how markets function, I postulate what could have happened. The following is for entertainment and education is not actionable.
On election night, after Trump was elected, the SP500 crashed 110 points (5%) before erasing all loses and spiking 130 points (+6%). In an almost perfect mirror of the Brexit crash and spike, this Trump rally is difficult to comprehend. However one must think from the perspective of the smart money.
In the quiet summer months, there was a period of inactivity. I suspect Smart Money were intensely planning 2 potential outcomes (Trump or Clinton victory) and what industries and sectors would benefit. They were rationally planning while Dumb Money naively subscribed to the following:
Clinton win: Stocks up, gold down, dollar up.
Trump win: Stocks down, gold up, dollar down.
One could possibly visualize this Smart Money planning period in the small range, summer inactivity. Dumb Money thought this was distribution leading to a crash. In the end, the crash scenario was NEVER on the table. Crashes occur very rarely and there is way too much liquidity. In autumn, under the guise of "election uncertainty", Smart Money sold the market right down to the 200DMA (the long term consensus of value). The polling data, incessant media converge and other shenanigans was pure distraction. The mini-correction allowed Smart Money to buy their respective Clinton/Trump thesis at value prices. The SP500 touched the 200DMA and other key levels. NYSE McClellan Oscillator was at a panic level of -80. The Put/Call ratio spiked to 1.4 meaning an asymmetrical amount of protective puts were bought that would eventually expire worthless. Smart Money (Warren Buffet) sells puts.
We started to rally early, Sunday evening, on premise of a Clinton victory and FBI clearing the accusations. The Trump victory acted as an excuse for Smart Money to create a mini-crash in the futures to induce fear. By market open, much of this crash was faded and Smart Money had already began to accumulate shares of the Trump thesis.
The Trump benefactors include:
Healthcare/biotech
Oil/gas
Coal/steel
Infrastructure/engineering/machinery
Defense
Banking
Long-dated treasuries crashed, gold was faded and European/Emerging Markets (non-domestic) struggled. The divergence between technology and the Trump thesis is worrying. Much of the rally off the 2008 lows was driven by the Nasdaq 100 and AAPL, AMZN, FB, GOOGL, and MSFT (ca. 10% of the SP500). These shares vastly out-performed the market and contributed disproportion ally to the general market rally. Should these shares be sold, the rally could be in trouble. However, the money exiting the beloved technology names must go somewhere....
Will this play out? Who knows? What we do know is that Smart Money probably profited handsomely from this well-planned and perfectly executed maneuver.
What a day! in attempt to understand how markets function, I postulate what could have happened. The following is for entertainment and education is not actionable.
On election night, after Trump was elected, the SP500 crashed 110 points (5%) before erasing all loses and spiking 130 points (+6%). In an almost perfect mirror of the Brexit crash and spike, this Trump rally is difficult to comprehend. However one must think from the perspective of the smart money.
In the quiet summer months, there was a period of inactivity. I suspect Smart Money were intensely planning 2 potential outcomes (Trump or Clinton victory) and what industries and sectors would benefit. They were rationally planning while Dumb Money naively subscribed to the following:
Clinton win: Stocks up, gold down, dollar up.
Trump win: Stocks down, gold up, dollar down.
One could possibly visualize this Smart Money planning period in the small range, summer inactivity. Dumb Money thought this was distribution leading to a crash. In the end, the crash scenario was NEVER on the table. Crashes occur very rarely and there is way too much liquidity. In autumn, under the guise of "election uncertainty", Smart Money sold the market right down to the 200DMA (the long term consensus of value). The polling data, incessant media converge and other shenanigans was pure distraction. The mini-correction allowed Smart Money to buy their respective Clinton/Trump thesis at value prices. The SP500 touched the 200DMA and other key levels. NYSE McClellan Oscillator was at a panic level of -80. The Put/Call ratio spiked to 1.4 meaning an asymmetrical amount of protective puts were bought that would eventually expire worthless. Smart Money (Warren Buffet) sells puts.
We started to rally early, Sunday evening, on premise of a Clinton victory and FBI clearing the accusations. The Trump victory acted as an excuse for Smart Money to create a mini-crash in the futures to induce fear. By market open, much of this crash was faded and Smart Money had already began to accumulate shares of the Trump thesis.
The Trump benefactors include:
Healthcare/biotech
Oil/gas
Coal/steel
Infrastructure/engineering/machinery
Defense
Banking
Long-dated treasuries crashed, gold was faded and European/Emerging Markets (non-domestic) struggled. The divergence between technology and the Trump thesis is worrying. Much of the rally off the 2008 lows was driven by the Nasdaq 100 and AAPL, AMZN, FB, GOOGL, and MSFT (ca. 10% of the SP500). These shares vastly out-performed the market and contributed disproportion ally to the general market rally. Should these shares be sold, the rally could be in trouble. However, the money exiting the beloved technology names must go somewhere....
Will this play out? Who knows? What we do know is that Smart Money probably profited handsomely from this well-planned and perfectly executed maneuver.