Although we have the conventions behind us, we need to continue our coverage because I do not think the media gets it. Realize that I’m giving you a combination of analysis from an independent mind that is politically neutral and seeks to look at the good and bad from a socionomics perspective. I base the socionomic perspective on my understanding of Prechter’s book. The Socionomics Institute may have a different take than I do; however, this is a young science and we are giving our best effort.
There was good and bad in last week’s convention, but let’s concentrate on the end. I think the entire week got a huge B-12 shot from Clinton’s speech. Obama’s was OK, but let’s face it: Bill Clinton is the best politician and public speaker of this generation. But on Friday the headlines were universally stating it was bad news for Obama because he was going to lose whatever momentum he had from the convention. Why? Because of the jobs number. Let’s understand one point: I don’t think there is a person left in America who is under the delusion the economy should be much better. We just spent two weeks listening to the challenger tell us how the incumbent failed and then have the incumbent tell us why he needs more time.
The momentum of this election was not dependent on Friday’s job number in any way. The stock market went to new highs last week. Folks, that’s scoreboard and really the only thing that counts. If we look at this election as a pennant race at some point one team gets a big enough lead over the challenger so the challenger can no longer catch up. Our take has been as long as the stock market sticks at new highs the better the chance for the incumbent. So there was absolutely no surprise that the initial polling numbers on Saturday gave the incumbent a 48-45% lead. If you listened to the media, you probably expected the challenger to gain the lead based on the jobs number. Last week was a big opportunity for Romney. On the surface that doesn’t make sense given it was the Dems meeting in North Carolina. But let’s look at the market.
I believe it was Tuesday where bears had the upper hand, actually started taking it to the bulls and the pattern started breaking down. But a funny thing happened on the way to the forum. The bears gave up again and set up the big move later in the week. Trading really is a zero sum game. Once the bears took their profits and went home who was left to take it down?
If you answered NOBODY give yourself a pat on the back.
So by the time Draghi finally fired that bazooka of his there were no bears standing in the way. The net result is our markets are hitting new highs. So the reality of the situation is that Romney was already in trouble before Clinton’s speech and really before Michelle Obama’s speech. The only people who had a clue were those of us glued to the charts and really understand how important the stock market is to this election. Those of you who don’t understand I want you to think of the Dow Jones Industrial Average as the scoreboard for human development. Whether you trade or not you can look at it much the same way you look at the NFL standings. If the Dow was up 100, the human race had a good day. If the Dow was down 100 we as human beings lost a little ground. It’s the social mood aspect of all this that ends up deciding Presidential elections and when social mood is up, especially in a rising market in an election year the incumbent has a much better chance of winning. I’ve been handicapping this for months and neither side has been able to break free but the bottom line is that we have a rising market and the incumbent in the lead. For the challenger to win he needs more discontent as expressed by a declining social mood. Looking at it this way the worst thing that happened to the Romney campaign is the stalled correction that concluded on June 1 and didn’t last all summer. Romney still has one last chance but he’s running out of time. The stock market is going to need to top really soon or Mr. Obama is going to build the kind of lead that he’ll likely nurse into the end. And if the market continues at this pace into the middle of October my feeling is that enough independents in the battleground states will have already made up their minds for it to make a difference.
Looking at this in a bigger perspective, the rise of the Tea Party and GOP move to the right is largely a result of the hard cycle push down that was the financial crisis. Realize that serious bear markets will produce a more extreme brand of politics. We haven’t seen anything like the Tea Party before because we haven’t seen anything like 2008 in a very long time. The anger from the bear gave birth to a GOP movement away from the center. However, another funny thing happened on the way to the forum. The stock market has been up since March 2009 and the NDX has been up since November 21, 2008. You can argue the market has been up nearly 4 years. As you know, this space has continuously argued the bullish case for the majority of the time based on the Gann calculations I first publicly shared with you at my Futures presentation at the New York Traders Expo in February of 2011. If you recall, I had an article in that same issue which given the nature of publishing was written several months before that. My point nothing has happened since that time which suggests Gann was wrong.
Next page: The view of the right
What does that mean to the Tea Party and the politics of the right? If the mood of the crowd was despondent and eventually angry enough to move to the right as a result of the crash, the intensity of the anger has been somewhat diminished by a rising social mood as a result of a better stock market these past years. It’s my contention that had the stock market peaked in 2011 and not recovered or peaked in March and not recovered Romney would have a good lead right now and we’d be on the cusp of electing a new President in a few short weeks. But the bottom line is the rising stock market which is expressing a rising social mood is negating whatever serious teeth and momentum the Tea Party garnered during the debt ceiling debacle of August 2011. From what I can tell, the horrible correction of 2011 was the peak of Tea Party popularity. We had a better stock market and nobody decided to have another debt ceiling fight this year.
So why do we have an incumbent President on the verge of re-election with the unemployment rate over 8%? The likely answer is that we also have a stock market sitting at new highs.
Looking at these markets briefly, we are a month out from the major time windows and let me just say there is nothing set in stone that they should top in October but for the life of me I can’t see them ignoring a big time window when the VIX is likely to be as low as it is. In my work, the combination of time windows and sentiment is a lethal combination. The US Dollar broke down and is on the cusp of breaking down to 2011 lows. Copper finally broke out of the Andrews channel that has contained it since early last year. Even the SSE is attempting an important reversal. I don’t have a problem with a Copper breakout as long as it’s supported by a turnaround in China. On the chart of the week we see a major violation of the long term pitchfork which has dominated the Copper action since early last year. What is interesting about this chart is how the price action stayed in the upper portion of the pitchfork which means the underlying structure of this market might have been down but had some strength to it. In our work it means that sooner or later what is manifesting under the surface will manifest as a trend change.
At the end of the day the SPX and NDX have serious resistance right at current levels so if we see a break through last week’s highs the markets can continue to power up some more.