nadavhurwitz

S&P 500 - Waiting for Directions + Political Analysis

Long
TVC:SPX   S&P 500 Index
Before we begin with this analysis... This time it is suited for people who are playing the long game...
All ideas that are expressed are of my opinion and interpretation of the political situation.

So...
While the world waited anxiously to see who will become president - so did equity markets.

On the technical side:
  • A Triangle pattern has emerged on a daily chart in the S&P 500 index . This is considered a continuation pattern - meaning that if we go by classical analysis, we should be looking for a breakthrough to the upside. Our target would be the length of AB (just below 4000).
  • We do have a bearish MACD divergence playing out


On the political side:
Joe Biden is a moderate democrat and this is good for the economy.
  • Implementing a strategy to handle Covid-19 will insure the smooth function of the economy even without a vaccine (widespread testing + mask wearing). Since markets are forward looking this is probably taken into account.
  • Despite talks of the "scary" Green New Deal, such a widespread plan could provide new jobs for people in the old and dated energy sector. (Lets not forget the the SPE has been declining for a couple of years now). Under a moderate administration the employment aspect of this will likely be reviewed heavily. To keep the people happy and voting for you you have to insure their financial safety.
  • No sporadic tweets about tariffs means the certainty increases - Positive for markets.
  • Even if taxes are increased, it will be marginal and only on the filthy rich.
  • Fiscal stimulus to the MAX.

On the downside:
  • Markets might be more regulated
  • As long as the Republicans keep control over the Senate, a Democratic administration will have a hard time passing legislation. Right now it looks like this will be the situation, but we will know for sure only in January since we have a runoff in Georgia. This increases uncertainty in the short term horizon.

To sum up:
  • I retain a positive outlook in the medium/long term since the new administration will be focused on responding to the Coronavirus and supporting the economy.
  • However, if inflation pics up the story changes completely. Real Vision have covered this extensively - you should check them out on YouTube.
  • If we break lower than point B without taking out point A, The market will officially enter a downtrend on a weekly basis. This is not good. The 2008 crisis started out like this (from a Dow Theory point of view)

    Feel free to share your opinion and happy trading!

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