All ideas that are expressed are of my opinion and interpretation of the political situation.
While the world waited anxiously to see who will become president - so did equity markets.
On the technical side:
- A has emerged on a 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 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 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!