The big move higher in the Nasdaq last week was basically the big 5 plus TSLA. Most of the other stocks in the broader market have shown no interest in following the leaders higher. In fact, most have been going lower. I can see it on my watch list of speculative small cap names, most are going down every day, and not by small amounts. Big chunks have been given up by the Covid pump and dumps and other assorted daytrader plays from the past 2 months.
This is nothing like the move higher in the indices in June, when you had very broad participation in the speculative wave, and almost everything was going higher. I suspect that a lot of this is due to both fundamentals not supportive of further moves higher and the lack of a fiscal stimulus deal which is cutting off a lot of the liquidity towards small cap speculation.
The stock market is now not only a QE addict, but its become a fiscal stimulus addict. And this isn't something that just started in 2020, it started with the Trump tax cuts in 2018 at the peak of the business cycle. Like any drug addiction, its much easier to start than to quit. And since most of the public doesn't care about budget deficits or the national debt, politicians will deliver what the public wants. Mo money, mo money, mo money.
Bearish for the next 2 months, but things will probably change
after the November election. In general, the market has a tendency to
have a pullback ahead of a presidential election (2008, 2012, and
2016).
September - November 2012
September-November 2008
Considering the amount of uncertainty coming into the election, with both virus second wave concerns and the election, I expect this pattern to repeat in 2020. Should see a weak September/October period this year.
As for the post-election outcomes, I really only see 3 possible scenarios.
A Democratic sweep of Congress and the White House which is the most likely scenario based on polls and betting markets. This will lead to a big fiscal stimulus package early next year. Tax increases would probably be delayed till 2022-2023 due to the current economic conditions and political indifference to huge deficits. It is probably the best case scenario for the stock market.
The next likeliest
scenario is a Democrat win for the White House and House of
Representatives, and a Senate win for the Republicans. That would make a
big fiscal stimulus package very hard to pass as most Republicans will
have no incentive to fund a bunch of social programs and infrastructure
to help out a Democrat president. Little fiscal stimulus is a disaster
for a market that can only run higher on more and more government
spending and/or tax cuts. This is the worst case scenario for the stock
market.
The third most likely scenario is a Republican win for the White House and Senate, with Democrats maintaining control of the House of Representatives. This would be similar to the Democratic sweep of Congress, but the fiscal stimulus package probably won't be as big under Trump as it would be under Biden. But you will still likely get a lot of infrastructure spending and as a bonus, there would be no tax increases. This is also a good scenario for the stock market.
So overall, you have 2 of the 3 most likely outcomes as a positive for the stock market after the election. So the short Nasdaq/SPX trade is aimed at capturing the September/October pullback ahead of elections. After the elections, most likely the market will rally higher.
There are concerns about a disputed election and complaints of fraud are likely if Trump loses, and like most things that are sensationalist headlines, it probably has no lasting market impact.
Its time to throw caution to the wind. It is a time to get bold on the short side, with puts now being undervalued IMO. AAPL and TSLA split their stock on August 31. So I expect a big hangover after that date, as many speculators delay sales until they get their "extra" stock. This lines up well with my September/October timeline for a substantial pullback. I will be adding to shorts in the coming days up to the August 31 split "party".
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5 comments:
NDX 12000 is a gimmee at this point dawg. I'm not trying to play devil's advocate or trying to be the anti-market owl. I'm just calling it like I see it. You pointed out the 2008, 2012, and 2016 markets. Problem with those comparisons is that they are spx not ndx and also 2 of those 3 markets the incumbent was ending his second term. In 2012, I think Obama was pretty confident no way he would lose to Romney. Here as it is now Trump is behind and the economy is the only thing he's got going for him. YOu know what that means. Foot on the gas, PPT in full effect. Man, cover and short higher or reduce your position to short higher. We are going past 12000, I can feel it. On August 5th, you said you were almost at max position. Trying to help dawg.
MAGA 2020 btw. No satan worshippers in the WH pleez.
pasting this interesting comment from another blog
Mark Fitting
22 hours ago
The stock market is not trading on fundamentals. I was a perma-bear until President Trump merged the Federal Reserve with the Treasury back in early April. Steve Mnuchin and Larry Kudlow are now controlling the Fed and there is no way they are going to let the stock market drop before the election. I am writing this comment on 8/23 and the election is 72 days from now. The S&P closed at 3397.16 on Friday 8/21. The Republican National Convention is this week and President Trump will be talking about how the S&P 500 is at an all time high so you can be sure that the S&P will be above 3400 before the close on Thursday 8/27. The S&P, Nasdaq and Dow will all be at new all-time highs before the election. The Dow will be over 30,000 by mid-October. You cannot short this market until after the election. President Trump will win the election in a landslide and the euphoria will carry into next year as the stock market continues higher.
Philip Svensson
Philip Svensson
21 hours ago
@Mark Fitting hmmm Trump owned market you say? 🤔
Mark Fitting
Mark Fitting
15 hours ago
@Philip Svensson Yes. The Treasury now controls the Fed so Trump's team is now in control of the stock market. The Fed has 3 Trillion on the sidelines to prevent the stock market from going down.
Mnuchin and Kudlow controlling the stock market? Kind of hard to believe considering how big the market is, that 2 guys, neither of them that sharp, could manipulate the whole market without anyone finding out.
3500 possible this week. God knows how high we will be in another months time.
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