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Stock Market and Gold Post U.S. Election Analysis

Stock-Markets / Financial Markets 2012 Nov 07, 2012 - 12:02 PM GMT

By: Giuseppe_Borrelli


Best Financial Markets Analysis ArticleWith more than five million Americans collecting unemployment, forty-six million on food stamps, and half of all Americans receiving some sort of government aide, we shouldn’t be surprised that Americans gave the man who made it all possible another four years. Obama won his election, the Democrats increased their hold on the Senate and gained seats in the House, so the President will take that as a mandate to move ahead with his great socialist program. Bernanke will continue with QE until hell freezes over, or the dollar collapses, in order to make the dream a reality. Obama Care will stay in the books even though it will not improve the quality of life for Americans, and they can’t afford to pay for it.

I am the first to admit that Romney did not have all the answers, and he wouldn’t have changed much. Both candidates would spend, but with Romney the average American stood a better chance of being on the receiving end. The big difference between the two men is that Romney would have capitulated to reality sooner than Obama. Obama will never deviate from his path and that will lead to the destruction of the dollar, the bond and stocks. He and his henchman, Bernanke, will QE until no one wants the dollar. Given the gains in the Democratic Party, they will feel emboldened to avoid any and all resolutions to the fiscal cliff. In the end the discussions of the fiscal cliff will go the way of the Super Committee.

The first casualty of an Obama victory will be the truth, and the second casualty will be growth and jobs. Although difficult to fathom, debt will skyrocket even more than it has. I predict that the deficit will exceed two trillion dollars a year before Obama leaves office. The debt will stifle what’s left of the economy. Bernanke and the Fed lie to us about raising interest rates and withdrawing liquidity once the economy stabilizes. Today the national debt is $16.3 trillion, an 81% increase in five years. The national debt will reach $20 trillion during the next presidential term. Normalization of interest rates to 2007 levels would result in an annual interest expense of $1 trillion, or 40% of current government revenues. If debt continues to rise at current pace, this annual interest expense will of course increase.

For those of you waiting for growth (green shoots), you’ll have a better chance waiting for Godot! Yesterday’s window dressing rally aside, the stock market knows this and that is why it topped:


The only question in my mind is what happens over the very short run (30 days). Do we get one last gasp up to a marginally higher high at 180 days from the last low, or did we just see a significant lower high form on Thursday and Friday and now we turn lower? I don’t know but I believe the market will give us an answer this week. On Friday we saw a downside reversal and today we on the road to see another one, but we’re a long way from the close.

With respect to the S & P the move down has been 45 days and that is a normal time for a retracement. The 1/3 retracement is also within the “normal” retracement for a bull trend (1/3 to 3/8 is norm). The move down was a struggle with only 71 points in 45 calendar days. On the other hand there is a pattern of trend that could materialize over the next few days that could negate the “struggle down.” There is also a four-day base and that usually brings about a fast move up, and that hasn’t occurred. In fact this morning the December S & P is down 10 points as I type.

If not much damage is done to the upside, and it appears that is the case, then a distribution pattern continuing is possible and if there is a deep correction then a secondary high will likely occur. But here is the key. The 1403 needs to be broken within the next 2 or 3 days and any rally needs to stop near the 1434 level. The point is also if this does set up and it hasn’t yet, but if the lower double top does show up the bearish probabilities are powerful as there will also be three lower highs. So the index is now down seven weeks and we have one of the smallest correction in points within that time period since the 2009 low. 

I am short the Dow from 13,500 so I would not want to be short the S & P too early as this can spike up from such a small correction. So far the move down could also be five weeks with one or two inside weeks. Up until a last Friday the picture showed nothing to short, but I did put on a small short position at yesterday’s close ( 1,426.00 in the December contract) and that position is currently in the money. I will use 1,426.00 as a stop/loss so I have nothing to lose.

In conclusion I would look for a continued bounce in the dollar and bonds over the next day or two as a sort of knee-jerk reaction. Commodities will continue to drift lower as deflationary pressures mount. I would also look for gold to hold on to its recent gains as the week comes to a close, and maybe even add on a few dollars. Gold has bottomed at the 1,671.00 support as you can see in the chart below:

and I will have a lot more to say about it tomorrow. Decent resistance is at 1,731.00 but the Fed will see to it that gold goes a lot higher from here on out, and a lot faster than most would have expected.

Giuseppe L. Borrelli

Copyright © 2012 Giuseppe L. Borrelli

- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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