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The Election
and The Market |
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The Presidential Election is finally
upon us. Next Tuesday is the big day. I haven't published any political
commentary as this newsletter is about the stock market. Therefore, I won't
comment on who I prefer personally, because you don't read this tome for
political views.
The outcome of the Presidential election
won't mean much to the stock market. I don't believe the President has
much control over what happens in the market. In my investing lifetime
I have done extremely well and extremely poorly under both democrats and
republicans. The market performed well under Reagan and Clinton, both two
term Presidents with opposite party affiliations. The market performed
poorly under Carter and Bush I, both one term Presidents on opposite sides
of the fence.
The worst outcome for the market
on Wednesday would be the remote possibility of no outcome. If the race
is so close that the polling practices in swing states are questioned in
court, we won't know who the next President will be on Wednesday. The market
hates that kind of uncertainty, and would certainly head south if that
were the case.
If there's one message I would like
to impart it is the following:
GET OUT AND VOTE!!!!!!!!!!!!!!
It Counts
In my view, if you don't vote you
lose the right to complain. If care about the future, vote on Tuesday.
If you care about who holds the most powerful job in the world, vote on
Tuesday. If you don't believe your vote counts, just remember the margin
of victory in the last Presidential election.
I can't wait to see this election
in the rear view mirror. I don't know about you, but if I see one more
negative political ad, I might wretch all over the top of my desk. One
of the candidates for state senate in my district is an environmentalist.
They run a negative ads against her about every five minutes on TV. If
you believe the ads, you would think she has personally filled our streets
with raw sewage. I think I might vote for her. The lobbyists must be spending
millions to keep her out of a relatively obscure office. If they hate her
that much, she must be good at her job.
In the meantime, here are some thoughts
on how the market may be setting up post election as we enter the seasonally
best three of twelve months.
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The
Market Has Gone Nowhere This Year |
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If you feel like we've been grinding
along going nowhere this year it's because that's exactly what has happened.
The NASDAQ opened the year at 2011 and closed Friday at 1975. Today's close
was within 1.7% of where it opened this year. In my view, that's going
nowhere. We had some excitement in the first few months, followed by a
drubbing over the summer, and the beginning of a comeback in the Fall.
However, on the whole, we have gone nowhere.
This sideways action has been reflected
in many of the smaller issues. HYPD, VTSI, NWKI, NWAV, and FMLY
are
all companies that have made tremendous fundamental progress while the
stocks have treaded water over the past twelve months. We simply need more
volume.
This chart is another interesting
look at the endless grinding. It's compliments of Adam Olensis of the Agile
Trader (I don't know where this guy comes up with these).
The red bars coming in from the left
side of the chart measure the volume that has occurred at that specific
level in the NASDAQ Composite since 1997. Note the huge volume spike between
1900 and 2000. More shares have changed hands at that level than any other
by a large measure. No matter where the market goes, it tends to gravitate
back to that level. This level serves as a magnet for the NASDAQ.
Here's a current chart of the COMP.
It shows we have a serious stealth rally in the making. The blue line is
the 50 day moving average, and the red curved line is the 200 day moving
average.
Note the solid uptrend over the past
90 days since the August bottom. Of even greater importance is this past
week's move above the 200 day moving average.
All technicians agree the 200 day
moving average is the benchmark of a long term uptrend. If any index or
stock trades above its 200 day moving average, it is in a long term uptrend.
This past week the COMP traded above
the 200 day moving average for three days in a row for the first time since
July 6th. We're not the only ones looking at the chart and seeing this
status. Traders are looking at the same chart, and they know we are entering
the seasonally three strongest months of the year.
The straight red line on top represents
resistance. As the support and resistance lines converge we arrive at the
tipping point in the market- explosive to the upside or more downside and
grinding? This is the exact level where the huge volume spike occurs. Adam
Olensis believes if we close above 2069, then 2250 is in the cross hairs.
On the earnings front, the 52wk forward
looking estimate for the S&P 500 reached $71 last week. A new all time
high. Most of the increase comes from the energy sector. The OTC Journal's
newest microcap energy idea- Torrent Energy (OTC BB: TREN) is still
rocking.
There are five E's weighing
on the market's mind these days: Earnings (decelerating), Energy
(this includes geopolitical conflict), the Election, Employment,
and Elliot (Elliot Spitzer now gunning for the insurance industry)
One of those E's one should
be out of the way next Wednesday. If there are no more hurricanes, strikes,
and consistent oil flow from Iraq, the Energy E might become less
troubling as oil prices come back down to earth. This would lead to resumed
economic expansion (last week's GDP looked good), and the E's in
Earnings
and Employment might be less worrisome.
Lots of ifs, but we're due to have
things go our way for a while.
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