Commentary: Paul Ebeling on Wall Street

Commentary: Paul Ebeling on Wall Street

$DIA, $SPY, $QQQ, $RUTX, $VXX

  •  NFPs report solid, shows best wage growth in 10 years.
  • China trade, market still struggles on news.
  • 4 day Rally paused Friday
  • All Eyes on the US Congressional Midterm Elections Tuesday

Friday, stocks opened higher then faded, trending lower into early afternoon. Positives turned to negatives. The old high to low. An afternoon bounce drove the RUTX and S&P 400 positive and took the large cap indices off their lows.

The US Congressional midterm election happen Tuesday, 6 November.

The stock market cares about are the Congressional elections and how they will dictate the balance of legislative power in Washington DC.

The Big Qs:

  1. Will the Democrats wrest majority control away from the GOP in the House and Senate?
  2. Will the GOP keep majority control in both houses?
  3. Will it be a split Congress?
  4. How would a split Congress impact the stock market?

Those questions will be answered soon enough yet the conventional polling wisdom is presaging the likelihood of a split Congress with Democrats holding a majority in the House and Republicans maintaining majority control of the Senate.

Political pundits are in their element now, making cases for why voters should vote for their party members.

The October pull back was brought on by growth concerns that stemmed from a fear of rising interest rates, deepening trade tension between the US and China,  signs of a slowdown in foreign economies, and the belief that the midterm Congressional election would produce a split Congress.

The thinking for this stock market is that a split Congress will stand in the way of passing additional fiscal stimulus and stifle additional efforts to reduce regulatory burdens.

Accordingly, we would attribute a portion of the October pull back to a sense that the spirits which have been driving the stock market since the Y 2016 Presidential election would to be reined in by a divided Congress.

It means, should it happen, that the momentum of the fiscal and regulatory policies that has been building since the Y 2016 Presidential election would be stopped in its tracks.

But, hang on, it will be extremely difficult to reverse policies given the President’s veto power and the improbability of the Democrats having the 60 votes necessary in the Senate to override the President’s veto.

What we do know for sure, that once the results of the midterm election are known life will go on.

The tax cuts will remain intact and a reduction in regulatory action will persist.

The challenges for the stock market is not the election.

The challenges for the stock market are rising interest rates, the trade tension between the US and China, and the slowdown in foreign economies, all of which are headwinds for earnings growth.

Those matters are not going to be settled no matter what the composition of Congress looks like on 7 November.

Bulls Vs Bears

Our Bull/Bear indicator is not perfect but we did accurately warn clients in late January and early February that an October sell-off was coming.

Overall, HeffX-LTN holds an optimistic view of this market, and our Y 2018 target for the S&P 500 remains 3,000, indicating a 10% gainer from last Thursday’s close.

Support and Resistance

HeffX-LTN’s US Major Stock Market Indexes Technical Analysis for the Weekend 2 November 2018

Date Symbol Price Technical Analysis Support Resistance
2 November 2018 QQQ 169.38 Bearish (-0.30) 169.19 172.10
2 November 2018 DIA 252.46 Neutral (-0.22) 251.52 253.61
2 November 2018 SPY 271.89 Bearish (-0.44) 268.83 272.17

Have a terrific week

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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