Equity markets will impact election

The excitement of the week will be determined by how the market responds to the Romney nomination speech. By all means, in the bigger picture Friday’s outcome is likely to be short term noise but everyone in the country is looking for inspiration, especially the market. I believe the market does not like Obamacare and the initial reaction to the Supreme Court ruling by the market was not favorable. Yes the market is higher but the market has lots of things on its mind. If it’s a good speech, I suspect the market should have a favorable day. It’s the last week of August and the market will be looking for an excuse to do something.

Surprise, surprise, surprise; in the interim markets changed direction. They hit a high point and backed off. Charts in Europe are also showing near term calculations that could present a high for the time being.

This chart of the DAX is representative of the three main indexes we follow. Briefly, the first leg up has a range of 728 points with an overall range to this point of 1191. What that means is the first leg has an approximate 61% ratio to the whole, which also means the entire leg has a 1.63 ratio to the first leg up. In terms of Fibonacci studies that is good enough for anywhere from a near term change of direction to an intermediate level correction. Whether it does that is another story, but the calculations are in place.

This isn’t just any year as I’ve discussed with you countless times. First of all it’s an election year and we have a horserace that is neck and neck. I believe the challenger’s best hope is for a market pullback that can still impact the minds of those who are still undecided. The longer the market stays at or near highs the greater the chance the incumbent wins because people are resistant to change and they keep the status quo unless they are motivated to switch. Of course we also have the big time windows coming from the end of September until about Oct. 22. Then we have the VIX which started higher but turned down again on Friday. Traditionally this is the slowest trading week of the year as even people who are at their desks won’t commit capital until they see what happens when people send the kids back to school the day after Labor Day.

So last week markets came off highs with decent calculations. But thus far it has turned out to be the same old story. Bears were to content to collect profits and remain without bigger conviction. Perhaps they aren’t looking at China. What I keep tweeting is how can most markets be at new highs while China is making new lows? Something is not right and this doesn’t make sense. Sometimes markets don’t make sense. But if we get follow through on this pullback things will start to come into focus.

The U.S. dollar is trying to find a low and probably had a premature bounce. We are looking for the greenback to find a low near 81which is the bottom of the Andrews channel as well as the 200-day moving average. However, getting the dollar to change a downtrend is no easy task. It usually takes two or more attempts and it’s like turning an oil tanker. Given the last week of August we could see a week long attempt to change course.

While on the surface this might be a quiet week, the intraday moves are likely to be volatile as what usually stays contained in a range usually does so with wild intraday swings. We’ll pray for the safety of the folks on the Gulf coast as well as a successful convention in Florida. Speaking of hurricanes, the other condition to watch for is to see if a storm in the Gulf brings supply concerns or demand destruction. It will give you an idea what the equity markets have in mind.

About the Author
Jeff Greenblatt

Jeff Greenblatt is the author of Breakthrough Strategies For Predicting Any Market, editor of the Fibonacci Forecaster, director of Lucas Wave International, LLC. and a private trader for the past eight years.

Lucas Wave International (https://www.lucaswaveinternational.com) provides forecasts of financial markets via the Fibonacci Forecaster and other reports. The company provides coaching/seminars to teach traders around the world about this cutting edge methodology.

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