COMMENT ON THE INAUGURATION AND THE BROAD STOCK MARKET (11:30 pm EST)
So here we are, on the eve of the presidential inauguration, and despite the occupation of Washington D.C. by tens of thousands of military troops and National Guardsmen, things have been relatively peaceful, so far. Financial markets have also been stable so far this week. But, of course, tomorrow is the big day when Mr. Biden is expected to be sworn in as the new POTUS. We hope and pray that there will be no violence, but there are those on both sides of the political aisle who are speculating that things may not unfold peacefully.
The mere presence of so many armed military (now at least 20,000 National Guard troops) occupying and surrounding our nation's Capitol building is alarming and causes one to reflect on why they are there. Most analysts on the Left claim it is to protect Mr. Biden from angry pro-Trump extremists and to insure a peaceful transition of power, but there are many on the Right who say that it is a corrupt and excessive display of power to protect a man and political party installed illegitimately through a fraudulent election. Some conspiracy theorists also claim that Mr. Trump may yet reclaim the presidency by invoking the Insurrection Act, and that the massive military presence is there to quell the chaos that could erupt under those circumstances. I am not passing judgement on any of these views, but simply describing the "wild and crazy" political environment we find ourselves in at the moment. And that environment could potentially trigger a lot of volatility in financial markets.
Even if nothing alarming happens tomorrow in the political arena, a collective "sigh" of relief from investors could be the trigger for some kind of a sell-off or, alternatively, a strong rally. As I mentioned in my previous blog, we are now in a strong reversal zone (Jan. 12 - 21, possibly extending to the 28th), and the broad stock market has been rallying and appears to be making a top. Last week gave us an intermarket bearish divergence signal between the major market indices (DOW, S&P 500, NASDAQ). Normally, this would be a good set-up to sell the market short; however, sometimes under unusual circumstances, a top in a reversal zone can correspond to a dramatic "break-out" instead of a reversal down. I think our current political scenario would qualify as an unusual circumstance.
We are coming to the end of the current medium-term cycles in the DOW, S&P 500, and especially the NASDAQ. They are all due to top out soon (if they haven't done so already), so we would like to be short for the final downward correction. I am tempted to sell short now, but there is still the chance of this market pushing higher before that fall. Let's see how the market weathers this potentially volatile inauguration day. A push to new highs might still give us a good point to sell short. We will remain on the sidelines of the broad stock market for now.
So here we are, on the eve of the presidential inauguration, and despite the occupation of Washington D.C. by tens of thousands of military troops and National Guardsmen, things have been relatively peaceful, so far. Financial markets have also been stable so far this week. But, of course, tomorrow is the big day when Mr. Biden is expected to be sworn in as the new POTUS. We hope and pray that there will be no violence, but there are those on both sides of the political aisle who are speculating that things may not unfold peacefully.
The mere presence of so many armed military (now at least 20,000 National Guard troops) occupying and surrounding our nation's Capitol building is alarming and causes one to reflect on why they are there. Most analysts on the Left claim it is to protect Mr. Biden from angry pro-Trump extremists and to insure a peaceful transition of power, but there are many on the Right who say that it is a corrupt and excessive display of power to protect a man and political party installed illegitimately through a fraudulent election. Some conspiracy theorists also claim that Mr. Trump may yet reclaim the presidency by invoking the Insurrection Act, and that the massive military presence is there to quell the chaos that could erupt under those circumstances. I am not passing judgement on any of these views, but simply describing the "wild and crazy" political environment we find ourselves in at the moment. And that environment could potentially trigger a lot of volatility in financial markets.
Even if nothing alarming happens tomorrow in the political arena, a collective "sigh" of relief from investors could be the trigger for some kind of a sell-off or, alternatively, a strong rally. As I mentioned in my previous blog, we are now in a strong reversal zone (Jan. 12 - 21, possibly extending to the 28th), and the broad stock market has been rallying and appears to be making a top. Last week gave us an intermarket bearish divergence signal between the major market indices (DOW, S&P 500, NASDAQ). Normally, this would be a good set-up to sell the market short; however, sometimes under unusual circumstances, a top in a reversal zone can correspond to a dramatic "break-out" instead of a reversal down. I think our current political scenario would qualify as an unusual circumstance.
We are coming to the end of the current medium-term cycles in the DOW, S&P 500, and especially the NASDAQ. They are all due to top out soon (if they haven't done so already), so we would like to be short for the final downward correction. I am tempted to sell short now, but there is still the chance of this market pushing higher before that fall. Let's see how the market weathers this potentially volatile inauguration day. A push to new highs might still give us a good point to sell short. We will remain on the sidelines of the broad stock market for now.
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