Scapegoat
Should Democrats take credit for last Wednesday’s Dow surge (+1,662 points)? Or should they catch the blame for Thursday’s plunge (-1,975 points)?
Politicians on every side love to grab the glory and dodge the fault, but the story behind these market swings is far more technical than political.
The midterm elections were a risk, a source of uncertainty, that the market had hedged against ahead of time.
Once the votes were in, traders unwound those hedges, triggering a wave of technical buybacks that pushed the market higher. When that flow dried up, the lack of conviction buying was laid bare, and the market deflated like a soufflé.
All square, back to center: the match between buyers and sellers can resume.
And with the election emotion behind us, the puzzle remains intact: can today’s valuations live up to their promises in tomorrow’s world?
Don’t count on it.
My trading plan
The underlying trend on Dow futures stays bearish, and this week could bring a fresh seller offensive.
In full control, the short sellers once again managed to bank their profits at the symbolic 51,000-point mark on Friday before letting the market bounce, but the decline could resume toward 50,000 points.
Against that backdrop, the market could start by hunting buyers’ stop-losses below the 50,858-point support over the coming sessions.
Happy trading!
Maxime holds two master’s degrees from the SKEMA Business School and FFBC. As founder and editor-in-chief of NewTrading.fr, he writes daily about financial trading.
Loaded down
Cracks are showing
Critical condition