The NASDAQ Composite and S&P 500 extended their rally attempts to six days yesterday as both closed higher on higher volume ahead of the election results. The major market indexes remain trapped between their 50-day and 200-day moving averages, but that appears set to change as U.S. futures are down sharply this morning. The election has essentially maintained a certain statis that plagues the legislative process, and while a divided Congress will likely not result in any constructive legislation for the economy, the Republican majority in the House also means that any furtherance of the Obama agenda with respect to increased taxation and regulaton is likely to be stifled as well. Thus we remain in a state of gridlock as the status quo remains.
QEternity now seems firmly in place making the monetary environment theoretically positive for investments, but the fact is that since the Fed announced QEternity on September 13, the markets moved lower after a brief and short upside jerk. On the other hand, realistically, had Romney won, a lack of a super-majority would prevent the passage of any ground-breaking legislation that would right the economic situation. While a Romney victory might have been viewed as positive for free markets, the uncertainty caused by the diminishment or elimination of quantitative easing could have also created market rip-tides and renewed volatility. Obama, on the other hand, represents a continuation of the same including QEternity which removes one layer of uncertainty. The key uncertainty now becomes the U.S. fiscal-cliff issue where over $600 billion of automatic tax rises and spending cuts are scheduled to kick in at the end of 2012. This could push the economy into recession, unless Democrats and Republicans can forge a compromise.
Precious metals ETFs, the SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) both rose sharply off their 200-day moving averages on higher volume partly from the market's view that President Obama would be reelected as this would reaffirm QEternity. The weaker dollar also helped spur the rally in precious metals on Tuesday. This morning, however, there is little reaction from the precious metals.
AAPL meanwhile closed slightly lower on lower volume, and this morning looks to open down over a percent, while short-sale target Google (GOOG) is also in a shortable position as we look for a "breakout" to the downside from its current bear flag with a downside target at the 200-day moving average running through the 635 level. The short side will be covered in more detail this morning during our intra-day market webinar scheduled at 8:00 a.m. for VoSI webinar subscribers.