The mid-term elections are over. The Democrats took control of the House while the Republicans strengthened their control of the Senate. There was no real blue wave or red wave as some had anticipated. Both parties are dealing with gains and losses in different states, but we now have a Congress that will be more resistant to Trump administration policies, and we can expect more congressional "stalemating" for at least the next two years.
So what does this mean for the broad stock market? Today's massive rally in equities is showing us that Wall Street is most likely breathing a sigh of relief that we avoided any one party victory which could have led to strong emotional back-lashing and instability in financial markets - i.e. we made it through the election in one piece. Indeed, some analysts are already saying that the likely stalemating we can expect in Congress from this point on is good for the stock market as it will suppress the passing of major changes in legislative policy (which makes Wall Street nervous). President Trump will also now find it more difficult to wage "trade wars" with countries like China, and this should be beneficial to equity markets. Whether or not such trade wars are helpful to our country's economy in the long run, in the short-term we have recently seen these policies frighten Wall Street and send equity markets into a tailspin.
It appears that covering our short position in the broad stock market on Monday was a good idea as we avoided what would have been losses from a 500+ point rally (so far) in the DOW. Based on my comments above, equity markets could be turning bullish now, and that is supporting the idea that a new medium-term cycle started with those lows in the DOW, S&P 500 and NASDAQ on Oct. 29. If that is the case, we could see strong rallying in this market for another 8-13 weeks. We mustn't forget, however, that we have potential reversal points coming up Nov. 8 (weak), Nov.16 (strong) and Nov. 30 (very strong). Any rally into these reversal zones could see a top followed by a significant correction. Our strategy will now be to buy any significant correction that stays above those Oct. 29 lows (that would be 24,122 in the DOW, 2,603 in the S&P 500 and 6,922 in the NASDAQ). Breaking below those lows would negate our bullish view of this market. On the sidelines of the broad stock market for now.