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Potential US Prez Plays

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Consider AUDJPY. At top of multi year bear channel re-confirmed by pin bar 3 bars ago (daily) and pin bar forming on the weekly. The pair is outside direct news buffeting but any kind of upset in the elections could see a big move into safe haven Yen and send price heading for the bottom.

 

 

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Increasing speculation on the possibility of a Trump win in US election. Many pundits talking of the increasing likely hood of a Trump win causing an initial S&P500 and USD puke then rally meaning a big drop then steady recovery on to bigger highs. All bets are off re tech analysis on all charts until election results. Keep your finger off the trigger and instead grab the popcorn, this should be fun.

Don't be in unless you already know the result.

Wait for the action and enter on the reaction.

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I couldn't agree more , the volatility around this election will, most likely, be off the charts.  The current bearishness almost certainly is about the election rather than a realisation that the game is up in my view.  The bizarre thing is that none of it really matters much to the economy or the markets in real terms, the power of the US president is not as great as the media would have people believe.  In any case, for other good economic and market dynamic reasons, regardless of Tuesday/Wednesday's results the markets are in for a big correction, if not a full on crash, because that is how markets kill of the weak and make room for new stronger players to enter.  And we are long overdue.  But is this the beginning of that or just a preliminary nervous nod to the inevitable before a last gasp rally?  For bears it is all to easy to believe the former but that is how a bear trap works I guess.

 

Regarding charts and technical analysis and so on, it still works fine.  The challenge as always is deciphering and deciding.  Let me show you what I mean with two opposing set ups on S&P500 and Dow (you can project either case on both of these markets).

 

First the Dow, which has a Head & Shoulders pattern that could be the top of the market.  This has been followed by the neckline break and a series of possible Triangle and resistance level breakouts to the downside, very bearish.  The EWT count is plausible for a market top and there was strong NMD at the high.  If not for the election backdrop I would be getting my Bear on big time with this set up.  BUT there is a very obvious alternative if you look at the Dow weekly; that this is a EWT3-4 retrace before a final rally from the Fib 38% area to the top and, hopefully, a major reversal.  This is accompanied by RSI and Stochastic on the Daily coming into oversold (not yet turned!).

 

Looking at the alternative scenario on the Daily S&P we can see that EWT3-4 (pink) retrace in close up with a nice clear A-B-C profile taking shape.  If this concludes with a 1-5 shaped move down to the Fib 38% or thereabouts (same as with the Dow) and a strong rally away then the final leg up is on.  Again you see Stochastic and RSI heading into oversold (not there yet).

 

So in conclusion I think if The Donald wins we are more likely to see the scenario where the market has topped already but if Clinton wins another leg up is probably before reality dawns.

 

Any technical analyst will tell you that charts cannot predict events (that would be utter nonsense in realms of Happy Potteresque fantasy) but they can help make sense of market reactions, likely scenarios and specific potential turning points to watch out for.  But like Caseynotes, I'm staying out and waiting for the result and the reaction signals to decide which scenario we have in play.  There are other less risky markets to play just now...

 



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I guess if anyone had any doubt over where Wall St. bias is regarding the US presidential election the reaction to the FBI clearing Clinton on the email thing clarifies it, the Algo traders have gone nuts for a Clinton victory and status quo (AKA having the President in their pocket...).  So Clinton victory = Santa Claus rally?

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The reason for some pundits thinking a moderate shock drop then rally on a Trump win is that he has always polled higher on the economy than Clinton and also declared a determination to lower corporate taxes and bring the trillions being held of off shore back home.

Even with the FBI backing off it may still be closer than many think re; persistent over sampling of Democrat supporters in the polls. I wouldn't try to call it, as I say 'popcorn on standby'. 

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Agreed  to close to call, which just a few short months ago you would have got great odds on...  I probably agree with your observation on a drop then rally on a Trump victory, although one can also see a more sustained drop.  A Clinton victory probably brings another rally to a likely new all time high or near miss into December.

 

Either remains within the bigger picture for me, in the sense that an Autumn beginning of the end is consistent with many of the past crashes.  You could argue that fresh all time highs negates that but certainly we have seen some softness in the markets since early September and I take that as a signal that the Bull is almost done.  The nature of any post election rally will be very interesting to observe and as you rightly say we have to wait and see.

 

Hot on the heals of the US election will be the Dec Fed and other CB meetings and then the Italian referendum.  In the New Year there is plenty of potential political instability to come.  Interesting times...

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FWIW, here is what MoneyWeek are saying about the election result impacts:

 

What if Donald Trump wins?

From John Stepek, across the river from the City

 

 

Most of the time as investors, we should be thinking about the long term.

But if you know that an event is coming up that could give your portfolio a bit of a fright, then I think it’s worth being aware of it.

Not so that you can time the market. More so that you can prepare yourself mentally. If you already know that you might wake up to a sea of red when you next look at your portfolio, it might stop you from doing anything too hasty.

(And of course, if you are a short-term trader, it is a good idea to get your scenarios planned out so you can work out which punts to take and where to put your stop losses.)

So let’s look at what might happen when this week’s US election results hit the wires…

 

 

The markets wouldn’t react well to a Donald Trump victory

The interminable US election finally terminates this week (we hope).

Assuming that it isn’t too close to call, or that one of the candidates doesn’t throw a massive hissy fit (those are big assumptions, I admit), then we should know who the next president of the United States is by Wednesday.

I’m not going to do anything pompous like formally declaring for one or other of the candidates. I know a fair few Americans read this, but they’d rightly ignore a foreigner telling them how to vote – the same way I couldn’t care less about a US pundit’s views on Scottish independence.

 

But regardless of your politics, you’d have to be wilfully self-deceiving to believe that markets would welcome the prospect of a Donald Trump victory. It’s pretty clear that investors see a Trump win as being similar to a Brexit vote – it would be an unpleasant surprise for them.

 

That’s why, after closing lower for nine sessions in a row, the S&P 500 has just gone through its longest losing streak. And it looks like having a rebound today now that the FBI has decided that the whole Hillary Clinton email business is off the table once again.

Why is this the case? In many ways, Clinton and Trump aren’t that different economically. They favour different sectors from one another – renewables versus fossil fuels, for example – but overall, they would both increase spending, and the US Federal Reserve’s monetary policies are unlikely to be significantly different regardless of who wins.

It really just boils down to expectations. Markets don’t quite know what to expect from Trump. He’s not the standard US presidential candidate. On top of that, he seems to be quite a mercurial chap (that’s a polite way to put it). So they need to discount that uncertainty.

In effect, if Trump wins, the market needs to be offered bigger returns in order to invest in risk assets. That means prices have to fall from where they are now.

 

So if he does win, I’d expect the following to happen: stockmarkets in the US (and therefore, pretty much around the world) would fall hard; the dollar would take a hit too (although not against the Mexican peso, which would fall harder).

Gold would jump. And as for US bond yields – this one’s a tiny bit trickier because you’ve got the “safe haven” impulse to invest in US debt clashing with the fact that it’s the US you’re worried about. But overall I’d expect them to rise (ie, bond prices would fall).

As I said, there’s no need to fiddle with your portfolio ahead of the big day (I’m assuming you already hold some gold, a good spread of global equities and some cash). I’m just outlining roughly what would happen so you know what to expect.

And if you’re a trader type, then going into the election, I’d guess you want to be short the S&P 500, short the dollar (maybe against the yen, which tends to benefit most from safe haven flows), long gold, and short US long bonds.

You’d be able to have a pretty tight stop loss at the upper end, because it’ll rapidly become clear if the bet’s going to go your way or not. But I won’t discuss this any further, because if you haven’t traded before – now is not the time to start.

What if Clinton wins?

 

What if it’s Clinton? The reaction would be milder overall, because she’s the continuity candidate. You’d probably get a bounce in stocks, a fall in gold, bit of a bounce in the dollar, and a fairly muted reaction from Treasuries (because yields seem to be heading higher anyway, and with Clinton planning on spending more money there’d be no reason for them to fall).

Biotech and big pharma probably wouldn’t like it. Clinton has talked a lot about tackling high drug pricing in the US. More broadly, it would probably set us up for the usual Santa Claus rally in the run up to Christmas as markets relaxed a little. But overall, I wouldn’t expect a huge reaction.

 

Of course, once the dust settles and the long-term implications of whatever the winning line-up looks like (remember that the composition of Congress matters a lot too in terms of getting things done or not getting things done) become clearer, markets may well get rattled again – regardless of who wins.

 

As I said, both candidates look set to be big spenders at a time when interest rates are wobbling higher. Both are interventionists, neither is particularly friendly to the ideas of globalisation or free trade, and they both inherit a messy bundle of foreign policy challenges.

 

We’ll be looking at what those challenges mean for whoever is the next president of the US in the next issue of MoneyWeek, out on Friday. If you’re not already a subscriber, you can sign up for your first 12 issues at a bargain rate here.

Until tomorrow,


John Stepek
John Stepek
Executive editor, MoneyWeek

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Good John Stepek article on potential outcome scenarios, thanks .

Latest ABC poll headline says Clinton 47 and Trump 43 but headlines didn't mention pollsters asked to speak to 'youngest voting member of household'.

CNN routinely over sampling Democrats +8 to +12 and still Trump closing. 

Basic thinking if a Trump win. Short USD and S+P. Long gold, yen, swiss franc.

 



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Yeah, although likely to be hard to get in.  Would have to watch developments as the final states declare, probably in the early hours of the morning UK time.  Online polls may give a fairer representation of how close it is (I have seen some at 45/43 to Clinton of late).  I read an interesting US political professionals view that in terms of electoral maths (or Math as the Americans would have it...) that Trump would have to take several of the big battleground states such as Florida, Pennsylvania, Michigan, Ohio to match the almost certainty that Clinton will get California, Illinois and NY and NJ.  Trump has no large states firmly in his pocket, although Texas is likely to vote Republican as it usually does (and Trump needs Texas).  Therefore if Clinton gets 1 or 2 of these states it will all be over early BUT if they all fall for trump then the result will most likely hang on a few Western states declaring late like Nevada, Oregon and Arizona, maybe even Alaska, again all swing states.

 

To be more precise, apparently, a first projection via exit polls usually comes out around midnight UK time with an expected result announcement around 4am UK time, unless it is very close in which case it may be further delayed.

 

Key poll close as follows (uk times):

  • Florida, Georgia (midnight)
  • Ohio, North Carolina (00.30)
  • Pennsylvania, Illinois - 1am
  • Texas, NY, Arizona - 2am
  • Nevada, Utah, Iowa - 3am
  • California, Oregon, N. Dakota - 4am
  • Iowa & Nevada - 3am
  • Can't find an estimate for Michigan

So net if Trump doesn't win Florida and Georgia at midnight tomorrow most likely Clinton wins and then on each poll release Trump pretty much has to win all the battleground states and win over the traditional Republican states that appear to be more in play than usual like N. Carolina assuming Trump doesn't take "safe" Democrat states like NY, NJ, Illinois etc.  Will be a late one if Trump get momentum but could be all over by midnight...

 

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Harami on Gapdown.jpg

Last year hike was around Dec this time data is strong only if President is decided so Fed is not doing anything. Trump looks like want a low interest rate env being a businessman so in short Trump -> Buy EURUSD Hilary -> Sell EURUSD as seen this weekend. Also a rare Harami candlestick weekly formation due to gap down in EURUSD is signalling a downtrend  for EURUSD

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That is consistent with the general message : Trump = USD down; Clinton = USD up.  However in the latter case beyond the initial volatility I think USD then drops back again as stocks go on a charge.  So IF this turns out to be true then after the initial election result volatility USD goes down and doesn't surge until stocks crash starts (which may happen on a Trump victory of course...).  Notwithstanding a Trump victory that would suggest that medium term USD will go down and therefore EURUSD will go up (I'm not saying EURUSD down over the next days is not possible, even probably but after that...).

 

WRT to weekly candle, this week has only just begun so we would have to wait until Friday close to call that but the gap down is significant.  How you play that depends on your methodology.  I tend to assume a gap is closed in a reasonable time frame as this is the usual pattern, unless it is a breakaway gap, which I cannot see here.  So that suggests a return to the 11150 area at least but perhaps not until after the election...

 

Short term the only thing driving the market in my view is the US election and as a medium to long term trader I am out until I find a better entry point.

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If Fed does not increase rate potential for ECB to come into action considering elections next year. Harami formation is still initial stages and US elections volatility USD will reach one way or another of last weeks range. lets see what happens. i do day trades so i watch each price level while writing this current 4H is scaring longs but im holding on to my position at least 2000

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first exit polls starting soon, buckle up. Stow valuables and loose change, let the rollercoaster commence.

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Yen rising big time. Eurodollar and cable not caught up (yet).

Trump seems to be pushing?

 

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And it is over, even the BBC admits defeat of it's preferred candidate (though she doesn't - yet). IG announce expect volatility but you have probably missed that as well, the rout started at 2am.  

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That's interesting, FX markets returning to starting point on victory announcement.

 



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Since the Crash, QE has unleashed a political movement. This really was no surprise,  Brexit proves that this was not just a blip in global politics. You best fear the Italian Referendum and the German and French Elections.

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Agree  after Brexit this was not a surprise, albeit an historic moment that will have long term ramifications.

 

That markets are bouncing back is also not that much of a stretch .  It certainly wasn't a black swan moment and given Trumps business credentials and proposed economic policy (especially tax cuts for corporates) it is no surprise that the markets are rebounding as the city spivs get over the fact that their chosen tame politician will not win and they will just have to go with it.  Maybe markets will begin to get back to reality (not until a clear out crash but perhaps this is the beginning...).  As I have often said about single events, the markets will do what they want to do regardless (i.e. they will rationalise the event into their bias in a demonstrable example of mass cognitive dissonance associated wit all asset bubbles).  So we may very well see the same final bounce that we would most certainly have got with a Clinton win.

 

One thing that remains to be seen is whether the USD will follow the stock markets OR start to depart as stocks make new highs and any rush to the safety of the USD recede to set up a retrace to prime the USD rally.

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Of course there is an alternative view that rebound in stocks is just a retrace and USD will continue to strengthen due to uncertainty and that would accelerate if stocks tun bearish again sooo...  Who know at the moment?

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America to all effects is a dictatorship, house of representatives and their judiciary system and president all republican, they can practically do what they want. Most likely it will now be an era of huge tax cuts, fiscal stimulus and my favorite one of all, end of mass QE. 

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Don't forget  Trump was the anti-establishment candidate and is hated by the Republican establishment nearly as much as by the Demarcates. His appointments to high office will be interesting, he wont appoint those republicans who mocked him and tried to derail him at every turn. 

S&P pausing for thought;

 



 

 

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That is correct  but the GOP has a once in a generation opportunity to really deliver and if they don't the people will see that they are truly not working for the people and certainly not listening so I am betting they will come to a consensus with Trump on most things and show they can do a job.  Alas for America it will not be pleasant for many, especially those not of a conservative christian fundamentalist view point, which is a shame as there are many good things they could do especially around the economy and job erosion due to globalisation.

 

With respect to the US being a dictatorship  I don't agree.  Just because all parts of the government are controlled by one party doesn't mean they will all agree on everything.  In the UK one party is in power and we don't call that a dictatorship...  Time will tell but I suspect that while this is a seismic shift in American politics, just like Brexit in Europe, it will turn out to be not the end of the world the liberal intelligentsia say it is, just like Brexit.  The big fear is that the disproportionate and antidemocratic backlash we saw in the UK, and to and extent are still seeing, could be much more dramatic in the US given the amount of guns on the streets...

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Which plane is he going to use airforce 1 or the Trump plane, will he land on the white-house lawn in the Trump Helicopter, lol.

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he certainly has comic value, the impressionists are gonna have a field day (err 4 years....)

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