Doing this little recap because I've already seen plenty of outlandish remarks on Twitter about the election and how the markets are overvalued and what not
So, as we all know the election results are being prolonged, Trump is whining, and the markets are up 9% over 5 days. Many believe this is overextended and that the markets will eventually simmer down once Biden actually does take office (lets be honest, he probably will). Let's analyze this week and market sentiment.
Why have the markets rallied 9% and is this overextended?
In short, this is not overextended and the markets will probably continue to climb. Behavioural finance will help explain this. The markets have not actually rallied or overextended on a technical basis, they have instead reconnected to primary/secondary trends after a major sell off. Smart money can help explain the sell off, that is, they knew prices would go down so they sold and jumped back in once the markets bottomed on Friday/Monday (I did too). Seen on the graph we have this trading range between the 2 orange lines, considering there hasn't been a breakout I'd say what happened in the markets this week is perfectly normal. Let's not forget all that cheap money too...
Next, lets look at the rationale and what "Wall Street" was actually focusing on:
Over the month nothing has changed, and I mean this is the most literal sense, nothing. Fundamentally some stocks surprised on earnings and jumped, and other not so well and fell; this is perfectly normal. Putting these exceptions aside why did the market jump 9% then? Why was the uncertain election perceived so well? An election went by, and yes, we will have a winner. However, the most important take aways are as follows:
- Republican senate (say bye bye to Bidens tax hikes and other left-leaning policies)
- Trump and Biden economic policies don't defer (there isn't any notable differences)
- Economic data is pointing towards recovery
Apart from the first 2 points (and maybe the 3rd as icing on the cake) everything else is noise. Covid will be cured, a president will be elected, taxes wont increase...etc. As you can see the clear pattern here: NOTHING HAS OR WILL CHANGE
That's pretty much it, we saw a pre-election sell off, then a rally. What's clear here is that Biden won't be as bad on the economy and market as people actually think, in my opinion I think Biden will actually do more good than bad for the economy. With Trump out of office I'm expecting an increase in foreign investment, influx of foreign cash, and *maybe* a first mover advantage in the renewable energy and marijuana industries.
Remember: What distinguishes a beginner from an expert is that an expert knows what to ignore.
For those who care, i'm up 33% since Monday because I stuck to my guns
So, as we all know the election results are being prolonged, Trump is whining, and the markets are up 9% over 5 days. Many believe this is overextended and that the markets will eventually simmer down once Biden actually does take office (lets be honest, he probably will). Let's analyze this week and market sentiment.
Why have the markets rallied 9% and is this overextended?
In short, this is not overextended and the markets will probably continue to climb. Behavioural finance will help explain this. The markets have not actually rallied or overextended on a technical basis, they have instead reconnected to primary/secondary trends after a major sell off. Smart money can help explain the sell off, that is, they knew prices would go down so they sold and jumped back in once the markets bottomed on Friday/Monday (I did too). Seen on the graph we have this trading range between the 2 orange lines, considering there hasn't been a breakout I'd say what happened in the markets this week is perfectly normal. Let's not forget all that cheap money too...
Next, lets look at the rationale and what "Wall Street" was actually focusing on:
Over the month nothing has changed, and I mean this is the most literal sense, nothing. Fundamentally some stocks surprised on earnings and jumped, and other not so well and fell; this is perfectly normal. Putting these exceptions aside why did the market jump 9% then? Why was the uncertain election perceived so well? An election went by, and yes, we will have a winner. However, the most important take aways are as follows:
- Republican senate (say bye bye to Bidens tax hikes and other left-leaning policies)
- Trump and Biden economic policies don't defer (there isn't any notable differences)
- Economic data is pointing towards recovery
Apart from the first 2 points (and maybe the 3rd as icing on the cake) everything else is noise. Covid will be cured, a president will be elected, taxes wont increase...etc. As you can see the clear pattern here: NOTHING HAS OR WILL CHANGE
That's pretty much it, we saw a pre-election sell off, then a rally. What's clear here is that Biden won't be as bad on the economy and market as people actually think, in my opinion I think Biden will actually do more good than bad for the economy. With Trump out of office I'm expecting an increase in foreign investment, influx of foreign cash, and *maybe* a first mover advantage in the renewable energy and marijuana industries.
Remember: What distinguishes a beginner from an expert is that an expert knows what to ignore.
For those who care, i'm up 33% since Monday because I stuck to my guns
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The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.