Equities are Headed Lower into the Election

UPDATE:  28 October 2008,  3PM Central.  Well That was wrong.  Stocks broke out the TOP of the wedge rather than breaking out the bottom and falling through the table.  Never fight the Fed.  The Fed is expected to set rates at or below 1% tomorrow afternoon.  Of course this in itself is nearly unprecedented; for the Fed to make a major policy move just days before a major election.  One more amazing occurrence in a series of amazing occurrences.  Note that the Dow 30 did not make a new low yesterday, and neither did the S&P500 Cash Index, though the futures did.

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Today, the S&P500 traded through the low established on the 10th of October.  That low, which I thought would be a durable low, lasted only 17 days.  Stocks are behaving like a ball bouncing on a table.  It bounces, bounces and bounces off of the table, and each time the bounce is lower.  Eventually it falls off the table.  This is what is happening with stocks.

This is happening as the election approaches on Tuesday of next week which is going to set the stage for the American system to come under prolonged attack by the forces of statism and collectivism.  If Obama’s lead remains secure, expect stocks to fall off the table this week.  But I would expect a bounce once the result of the election is known.  Buy the rumor, sell the fact as they say.  The mere removal of the uncertainty will give markets a lift, even if the result is unfavorable for economic freedom.  Between now (Monday afternoon) and next Tuesday however, who knows how low things can go.  See below.

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