Wednesday, October 24, 2012

"Are We There Yet" Redux.

There were some questions from readers about the stock market performance vis-à-vis Presidential elections cycle. The theory goes that price movement in stock market predicts the winner. Logically the incumbent wants to spread the feeling of well being before the voting and “O” has done his best to goose up the stock market with endless liquidity flow. And barring the 50-60 point sell, we are actually closer to the top end of the range. And yet every drop in market is cheered and end of the world is eagerly anticipated. We never believed in this rally (including me) and many have stayed away from the melt up from June. But someone made money and I bet that someone belongs to the Boyz club. With this month long chopping and grinding down, sentiments are bearish. But if the COT EuroDollar chart as shown yesterday is any indication, we should follow the money flow of the TBTF banks.

Today Stock Trader’s Almanac had this chart:

It compares two past Presidential election when the challenger defeated the incumbent. I do not care much about who wins but what I wanted to point out from the chart is that in both cases the market has gone up from this point.

Is it any wonder that cycles are calling for a rally soon?

Today /ES (SPX Futures) tested the 1400 line twice during the day and so far it held. The 1st rebound from here, if it comes tomorrow will fail. And at that point we have to see whether it makes a higher low and whether there is a positive divergence in RSI. I think we will again test this level in a day or two. By that time we will be in the last week of October.

Gold tested 1700 level and held so far. Same with Nat.Gas. It did not go below $ 3.40. If it does not break through $3.40 in a day or two, I will anyway take a long position with  Nat.Gas. The COT positions are bullish.

Although I plan to take a long trade by end of October, I am hesitant to long equities. I think it may be a good idea to Short VIX. Again this would be a trade for 15 days or so and not an investment. I think we will get a decent correction after mid-November, not an itsy-bitsy 50-60 points correction which is about to reverse any-time now.

So we wait for another day and in the mean time day traders pile up on short trade only to be squeezed. Thanks for sharing my thoughts. Remember, cash is also a position.