Daily Commentary: October 31, 2024

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Election Crash Coming!

Posted by Pete Stolcers on October 31
www.oneoption.com

It doesn’t matter who wins the election. Analysts say we’re doomed.

PRE-OPEN MARKET COMMENTS HALLOWEEN – If Trump wins, his tariffs are going to ignite inflation. Interest rates will spike and consumption will tank. If Kamala Harris wins, World War III will breakout because our enemies know she is a weak leader. This is what analysts are saying. Those who listen are scared shitless… boo. If you are going to make it as a trader, you have to completely tune these idiots out.

In the last 24 years there have been 6 elections. In 2000 we had “hanging chads” and indecision for weeks. The market was volatile and it dropped when the recount started to drag out. This I believe is the only scenario where the market could lose 5% between now and year end. In 2008 the market dropped after the election because the US was in the middle of a financial crisis. The other four times, the market has been up the day after the election. It is going to take a lot of time for the policies of either candidate to “take root”.

Let’s take a look at the fundamentals. Inflation is easing, the Fed is dovish and earnings season has been excellent. All of these numbers have been coming out this week and they are solid! We are in a period of seasonal strength and Asset Managers like marking portfolios up into year end so that they can make more money on fees.

Let’s take a look at the technicals. The market sold off in August. That is a seasonally weak period. The drop was deep and swift. It was cause for concern and we were watching for a wimpy bounce that stalled at the 50-day MA. That would have resulted in a double top lower high that was well below the previous high. That would have been a bearish sign because sellers were anxious to reduce risk and they would have smashed any decent bounce. That never happened. The market shot right through the 50-day MA. That move almost tested the prior high and it was a sign that buyers were still in control. We saw another dip and it was gobbled up producing a higher low (Cup & Handle). That is a bullish pattern. Then the Fed cut rates by 50 basis points and the market made a new high.

With everything that I’ve just described, make a bearish case.

If you are super worried about Apple and Amazon earning after the close today or the jobs report tomorrow… OK. If you are worried about the election next week or the FOMC Statement Thursday… OK. Cash is a position. What ever you do, don’t short.

This is a time to be cautious. We don’t need to take big risks ahead of major news events. I like being long starter swing positions. My risk is minimal. I am focused on buying dips for day trading when the market gaps down like it is this morning. I need to see support at AVWAPQ. This is a pretty big drop overnight and I am going to respect it. There’s a good chance that I might not trade today.

Swing traders who are losing money on longs will convince themselves that they were wrong and that this overnight drop is a sign of things to come. They will take losses on their longs and they will buy puts. They’ve listened to the analysts and it doesn’t matter who wins the election, the market is going to tank. This is what they believe is going to happen. They don’t have any fundamental or technical data to back up why they feel this way.

We don’t pick market tops, we need technical confirmation. The up trend has been strong the last year and that tells us that we should buy dips once support is established. Anyone who shorted dips is going to cover for a loss and the market will make a new high. For every dip, this is the most likely outcome and we keep trading this way until we see a really deep drop that lasts a long time. Buyers are conditioned to buy dips so there will be a bounce. If that bounce makes a lower high, that is when you need to exit your longs and you need to watch for signs of resistance. When the market falls below the low from that first dip, you have confirmation. That is when you can start trading a trend reversal and not before.

Don’t listen to analysts. Price is truth and right now it is telling us to buy dips. Below you can see a major support level on a weekly chart.

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