Amidst the recent cable news coverage its hard to find any news beyond the US Presidential primaries. There is an important piece of data that has occurred quietly with little attention. The return of ‘W’. No I’m not talking about the 43rd US President but the trading pattern of US Stock markets. I put out several pieces during the ‘frenzy’ of the sell-off in January that I saw many parallels to the correction in 2011 and so far the markets are behaving as such. You can see from this chart from Bigcharts.com that we have traded in a pattern that looks like a fading ‘W’ or some would say a series of W’s.
It’s still too early to know whether the bottom is behind us or if this is just a rally within the continuing longer-term decline but sentiment has certainly improved and there still remains a fair amount of short positions plus cash on the sidelines – a change to either could provide fuel to the upside.
Should we break this ‘W’ trend then a new game is afoot but I expect the markets to continue trading in the same pattern until the election. I know political rhetoric can get some people heated up but realize that history has shown regardless of who wins the upcoming election the markets generally rally afterwards due to the end of uncertainty. Few will make big long-term bets until they know the results of a general election, especially one without incumbency. Now depending on who wins can affect how long and how much the markets rally. Regardless of who wins there will be sectors of the economy that benefit and others that are hurt. We will continue to follow the data to guide us through the markets’ obstacle course and try to remove emotions from decision making.
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