The Election Drama is Coming to End but What Comes Next?

As we come to the end of October, all major US stock market indices sit near all-time highs, just a few days out from one of the most highly contested presidential elections in recent history. With 54 million Americans having already voted in early voting, this election will have one of the highest voter turnouts in American history, if not the highest.

So far, earnings have remained good for most tech companies, which is why the Nasdaq sits near all-time highs, as seen in the chart below.

But also seen in the chart above is a potentially bearish pattern called the cursive letter “N,” a form of double top that occurs when markets are experiencing distribution at high valuations. 

Cursive letter ‘n’


As you can see in the chart above of the
$SPY, we have a variation of that pattern. But in the case of the $SPY, the second top has made a new high, which is more bullish than the equal top displayed in the $QQQ. However, $QQQ is the ETF of the Nasdaq 100, which is representative of the technology sector, and for the most part has led the market rally. Therefore, it is not surprising that a bearish pattern presents itself on the $QQQ first, and in a more pronounced formation.
 

Shimmering Physical and Digital Gold

Next, let us look at gold as represented by $GLD, the gold ETF. Gold has broken out to all-time new highs, and this is not surprising going into a US presidential election because whoever gets into office will most likely increase deficit spending, further weakening the US dollar. To put it simply, whoever wins the election, being in gold is a safe bet.

We could see the same bullish trend in $GBTC, the bitcoin ETF, as we see in gold. Bitcoin, being digital gold, rises inversely to the weakness in the US dollar. $GBTC has not risen to all-time new highs the way gold has, but it has moved back up to the top of its trading range, potentially setting up for a breakout sometime later in the year or next year.

Election Transition

Pretty much the entire market has been muted going into next week’s presidential election. But don’t think that the election will resolve the volatility, as this election may be contested the way the last one was. And even if the election is resolved quickly and amicably, the process of transition will continue to add to the wall of worry. Remember, the transition process will take until the first three weeks of January.

One thing is for certain: most market participants will be happy to see the election behind them so that the markets and the world can get back to business without concern for the constant bickering and campaigning. Keep a cautious state of mind and be mindful that some of the technical charts are starting to indicate the markets are overdue for a correction.

Written by Michael DiGioia, Director of Education
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