Wild day on Wall Street. The S&P 500, the Nasdaq, the Dow Jones all did finish lower, but WELL off the lows. Last week, I mentioned how this week would be big with the Georgia (GA) Senate run off and then the December 6th Electoral College vote. The GA Senate run is the big one.
If the Democrat Candidates win both seats tomorrow, the Senate is split 50-50 between the Democrats and the Republicans, but the Vice President gets the determining vote, and since that person is a Democrat, the Democrats technically take the Senate.
This means that they can pass the programs that they want. The current set up, with a Democratic President and a Republicans controlled Senate is the Goldilocks zone. Balance and checks remain so the Democrats cannot pass large programs.
"Strikingly, while online betting markets priced in a relatively modest 25-30% probability of a blue sweep (i.e., Democrats winning both GA runoffs tomorrow), the Predictit odds for a "blue wave" have soared in the past few days, surging just shy of 50%." In fact, we went slightly above 50% today.
To me, this would meet the definition of a Black Swan Event. Something the market is NOT pricing in. So there is a possibility we drift lower given the outcome tomorrow (perhaps market pricing this in NOW). Just want to be clear: this is not telling us the Dems win the Senate tomorrow, it is just a possibility that the markets are fearing and reacting to.
If the Republicans maintain the Senate, markets will continue their uptrend as we remain in the Goldilocks zone.
If we get the Dem outcome, we can continue a move lower.
The zones I would look at would be on the Daily chart. For the S&P, there is a possibility we are forming a head and shoulders reversal pattern. The 3640 is a major support zone that I am watching if price drops lower. One can make a case there is a flip zone at 3700, and the daily close is indeed closing back above.
If we do hit 3640, expect a bounce and then our right shoulder eventually breaking below 3640. That would be my short trigger. I would target 3530, and then 3400 below that.
BUT you all know my outlook on the monetary and fiscal side. Cheap and easy money is here to stay. It cannot stop and it will not stop. So yes, there is a chance the S&P 500 and other US Stock Markets drop on the "Blue Wave", but I do think the dip eventually gets bid up.
The Federal Reserve is not stopping its asset purchasing program anytime soon. Interest Rates will be suppressed, and stock markets will continue to be the only place to go for yield.
A Blue Wave means even MORE money will be spent. Democrats are generally big spenders. Stock markets continue to be the only place to go for real yield. You all know my thoughts on Gold, Silver and Cryptocurrency. This is where you want to be to preserve purchasing power!
Expect a highly volatile week. At the end of the week, I would not be surprised to see the tone change. What started as a red week on wall street, turns to be a positive week for wall street. I welcome this relief rally, and further pressure if it plays out. Profits must be taken and the markets need to give back some!
Thanks for your analysis - I think Black Swan is too severe, some traders will be contrarian and backing both seats to go blue, so even though markets may not be pricing it in, it isn't an unexpected outcome. (Just being picky here sorry) If Dems take both seats, than the risk of Trump's Tax Cuts being reversed or partially reversed are certain, so markets will respond accordingly.
That said, I am expecting a replay of election drama with the results not being known straight away and going red first and then blue creeping up. Where it ends up is too close to call.
So yes a volatile week, and markets will recover from any sell-off. I'm hoping to by the dip. I note your 3640 level, but I am aiming for closer to 3600. Let's see. It's Asia now and the market's are in a weak risk on mood after London and the US sessions sold off. Best of luck!
Uncharted-FX
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@majicktrader, Oh great points! To be honest, I think you on the point with the potential close to call election drama! Will be a volatile week! All the best!
majicktrader
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@Uncharted-FX, Just following up this one - so we had a blue sweep but the markets still like the Stimulus that Biden is offering which outweighed any negatives over tax cuts. Nevertheless the Bond market reacted more severely with a sell-off and US10 year yields have risen sharply, which have now created a dollar bounce. If they keep up their upward trend, than equities will eventually fall. When this happens, I am not sure, but it may not be for a few months - maybe even in the second half of next year.
Trendtarda
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Agree. Initial correction will be minor. Then a larger correction is due
Uncharted-FX
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@bennowilson91, Sure to be a volatile week for sure! All the best!
That said, I am expecting a replay of election drama with the results not being known straight away and going red first and then blue creeping up. Where it ends up is too close to call.
So yes a volatile week, and markets will recover from any sell-off. I'm hoping to by the dip. I note your 3640 level, but I am aiming for closer to 3600. Let's see. It's Asia now and the market's are in a weak risk on mood after London and the US sessions sold off. Best of luck!