Wednesday, November 7, 2012

With the Election Over, Will the Market Break from this Pivot Zone?

The election's finally over, so it appears the country will have at least four more years under the reign of the Most Powerful Man in the World -- I refer, or course, to Fed Chairman Ben Bernanke.  I think there was also a Presidential election.

So what does this mean for the market?  Well, Obama staying in office suggests no radical changes in the guard, which means the market can likely count on QE-Infinity, and the generally inflationary policies of the past few years, to continue.  Barring a massive external deflationary event, this would seem to be bullish for equities over the longer-term.

The market, however, remains caught in a pivot zone and difficult to read.  As I noted last week, there is an excellent chance an intermediate low is forming here, but no key levels have yet been claimed to the upside to build confidence.  Across markets, there is still conflicting information in the charts.

On the S&P 500 (SPX), the decline from the 1474 has a great deal of price overlap, which so far leads me to believe it is corrective -- however, a material breakdown of the green support zone (noted on the daily chart below) could be quite damaging to the market's technical picture.  Unless that happens, though, the most probable view is that the decline is complete or nearly so, and that new swing highs will follow.

The short-term SPX chart is open to a lot of interpretation.  I've noted one potential wave count (which sees a complex 2nd wave correction unfolding) along with some buy and sell triggers.

I'm still watching the Philadelphia Bank Index (BKX) for clues.  So far, the bottom I noted last week as a complete fractal pattern has held, but I would become quite uncomfortable for the bull case if that bottom fails -- especially if the blue wave (1) high is broken. (continued, next page)

The Dow Jones Industrials (INDU) is also still sporting that "could go either way" look and has either started a fresh leg up, or simply complicated the wave 4 correction.  I've noted some key pivot levels on the chart.

In conclusion, the market has taken steps toward building an intermediate bottom, but has yet to seal the deal.  We'll watch how it responds to the noted key levels this week for further clues.  Trade safe.

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