Wednesday, November 7, 2012

Bored Out of My Mind But Perfectly Content (Plus a Little Politics)

Hi traders.  I'm going on three weeks strong now totally in cash, and although it is quite boring, I really wouldn't change a thing.  As today obviously shows, this market is in major correction mode and really there hasn't been anything to do but sit on your hands unless you're day-trading.   Not only has the market been weak, but there have also been so many unpredictable news events (Hurricane Sandy, the jobs number, the election, etc) that even if you wanted to make some trades, there has been no rational reason to do so unless you are simply a gambler and want some action (never a good reason to make moves as a trader).  

Today was a major technical breakdown on extremely heavy volume.  Both the Nasdaq and Russell 2000 have now sliced through their 200 day moving averages with no obvious support anywhere close.  This now has the looks of an intermediate-term correction that perhaps could turn into a full-fledge bear market over the next few months.   We'll have to see on that one but don't think it can't happen.  Defense without a doubt remains the correct play here for swing traders.


Even if you're just a shorter-term trader looking for a quick bounce, there is little reason to be optimistic here.   We are nowhere near being oversold at this point, even with today's big selloff.  The T2106 has a long way to fall before getting into what I consider "extreme" territory (below -300).  My RSI(2) oversold indicator (a custom one I keep track of) is also nowhere near "extreme" territory.  Sure, we could see a bounce attempt off of today's selloff but I think there is just as good a chance of seeing another day or two exactly like today.  Maybe that's what we need to get to the point where we could see a decent week-long reflex bounce.   For now though, even for the short-term trader, cash remains the best place to be.

Charts from TC2000, Courtesy of Worden Brothers.

The big news item today was obviously President Obama's victory last night.  A lot of people assume that his win caused the big selloff today, and while I am sure it had some effect in some areas of the market (coal is the obvious one), it seemed like this outcome was known by everyone except Karl Rove for the last week at least.  I did vote yesterday but for neither Obama or Romney as I didn't think either of them were good candidates.  I guess you can say I went with the "protest" vote. 

In my opinion, President Obama was an extremely ineffective president over the past four years and did nothing to deserve a second term, but there were simply no dynamic, inspiring candidates in the Republican party and it obviously cost them.  I talked to several republicans over the past few months about why they were voting for Romney and I can't remember one time that any of them said anything other than "he's not Obama".  No one ever mentioned anything they actually liked about Romney.  I think the Republicans could have nominated Adolf Hitler and most would have voted for him simply because he was "not Obama".  It's probably the same for most democrats - they just didn't want to vote for anyone that was "like Bush" and many saw Romney as that type of candidate.  I wonder how many of the millions that voted yesterday actually voted for a candidate they truly supported and were behind rather than choosing between the lesser of two evils.

We are certainly a very divided country and I am both interested and scared to see where we go from here.  I wish President Obama the best going forward and I hope he can be successful dealing with the multitude of issues we as a country need to deal with (and deal with soon).  I see two outcomes for his presidency over the next four years and in my opinion, it all depends on what is more important for him - his legacy or his beliefs.  

If his historical legacy is more important to him, he will truly work to end the division that separates our capital and bring both sides together to compromise and get some things done.   Does he really want to go down in history as the president that allowed the country to fall off the "fiscal cliff"?  Does he really want to be know for another "great recession" that will likely come if that fiscal cliff is not dealt with successfully?  Will he be like his pal Bill Clinton and come to the center for the benefit of the country in his second term?   I have no idea.

If his beliefs are more important to him, then he may be even more aggressive with pushing his agenda through whether republicans and the American people like or not.  He is done after the next four years regardless of what happens and there will be no repercussions for his decisions to his political career.  He doesn't have to worry about being reelected.  Will he decide to push the country even farther to the left than he tried during his first term because of this?  I have no idea.

Certainly I hope the President decides to go with course one rather than course two.  These are historic and somewhat scary times and the decisions made over the next four years could affect the next forty years or more in a very powerful way.  We are still a great country with tremendous minds, resources, and power to solve any problems that we may face.  We need leadership to be able to do that however.   Let's hope we get it as we move forward following this election. 

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