The election is over, aren’t you glad? Honestly, it was more stressful than I can ever remember for an Election Day. I am going to leave political views entirely on the curb. But we must talk about last Tuesday evening.
It never happened. If I am to look at the S&P 500, Dow or Nasdaq there’s no proof it ever happened. But if I look at the futures, the Dow E-mini was down something like 976 points at its worst. The SPX followed through on its fine square out from the Brexit low to turn up last week at 92 days low to low. You see it was down 91 hours at 1991 back in June and prior to the election turned back up at 92 days.
But we do have to talk about this monstrosity. Coming into the evening last Tuesday I did have some smaller calculations I thought would cause the market to retreat but based on what I showed you above in the SPX it was to be of uncertain duration. Wasn’t that the truth? As quickly as the decline mounted it evaporated. It was almost like a flash crash but it wasn’t. This was a flash crash in slow motion. Here is what is weird about it.
When we see drops of this nature with a recovery, what usually happens is the drop will be so profound as to not recover until the next day. What that normally does is gap the regular market down on the open and then it goes straight up. In candlestick parlance, that’s known as a bearish belt hold formation. This one recovered so quickly the day markets never had a chance to drop. To be frank about it, in all the years I’ve been doing this work (now 17 years), I’ve never seen such a thing. If you didn’t have a vested interest in this election, if you took off for Mars at Tuesday’s close and got back by Wednesday’s open, you wouldn’t know anything out of the ordinary happened.
That is as bizarre as this entire election season. For now, markets are mixed but doing a lot better than many would’ve thought. The big loser is gold which has been straight down since last Monday. Let’s be clear about this, financial markets do not view Donald Trump as a risk. They didn’t crash and Gold didn’t go to the Moon. That doesn’t mean all is well, far from it.
Once again we are confronted with civil disobedience. At first the protesting was peaceful but it starting turning violent and there are no real signs of it dissipating yet. I’ve heard reports the troublemakers intend to disrupt Christmas shopping on 5th Ave in Manhattan as well as elsewhere. It’s starting to remind me of last year all over again. If the troublemakers are going to disrupt Christmas shopping the markets are going to take a hit. If we’ve talked about it once, by now we’ve covered it a thousand times. The public doesn’t like social unrest and they’ll shut their wallets at the first sign of it. The first acid test this year of the Starbucks consumer behavior report which appeared after the Ferguson riot will be Black Friday which is suddenly less than two weeks away. At the rate we’ve been going, there could be disruptions in multiple cities. I’m not one for hyperbole but this election season broke the mold. The aftermath of the Trump victory has already broken the mold. Half the country wasn’t going to be happy with the result.
We survived the election without a black swan if you discount that 900+ point drop in the Dow futures overnight. I wouldn’t call it a black swan. We know this was a globalist versus nationalist event. We know Clinton was the globalist candidate and let’s just say senior bankers were rooting for her. That being said last week CNBC reported anti-Clinton rhetoric on the floor of the exchange among rank and file traders. Could it be the market finally came to its senses and realized there might be something to cheer about in a Trump victory?
On the one hand, we can all see why multi-national corporations would prefer to keep wages down with their factories far from North America and not get mixed up in a tariff war. But then they may have considered how much the economy could be freed with a Reagan era tax cut coupled with serious adjustments to Obamacare, which would negate the huge premium spikes coming in 2017. How many months during the past 4 years have I come here and reported much of the jobs created were of the hospitality variety which are not even of the minimum wage variety? Small business could use a shot in the arm to start hiring full time workers again. Then again, gold is way down so they don’t seem to be too worried about a Trump administration.