US Stock Market Setup to Rise 10% in Relief Rally Off of the October Pullback

US Stock Market Setup to Rise 10% in Relief Rally Off of the October Pullback

US Stock Market Setup to Rise 10% in Relief Rally Off of the October Pullback


My work shows that the US stock market could rally in relief at least 10% after Tuesday’s midterm Congressional elections.

With so much risk recently taken off the table heading into the elections it is a set up for a big bounce.

Our prediction at the beginning of this year saw the S&P 500 hitting 3,000 by year’s end, that has not changed. The index closed near 2,755.59 Tuesday.

We will see another wave of buying as investors return to the market to buy what got hammered and have not recovered.  There are bargains in many industries such as technology, discretionary, industrials, energy and materials.

And if the result of the election is a split Congress, where Democrats take the House and Republicans keep the Senate, it is really not great for next year I do not believe. It will not matter into year-end, as it is still a relief rally.

Relief Rally: A relief rally is respite from market selling pressure that results in an increase in securities prices. Sometimes, it happens when expected negative news ends up being positive, or it is less severe than expected.

Market participants price in many different types of events, in addition to corporate earnings. Examples include election results, policy interest rate changes by the Fed and new industry regulations. Any of these events can trigger a relief rally when the news is not so bad, relative to widespread negative expectations.

Relief rallies happen in many different asset classes such as bonds and commodities, not just stocks.

US stocks rose Tuesday

Strong earnings and easing of trade tensions lifted materials and industrial sectors, but trading volumes were light as uncertainty about the outcome of US midterm elections kept investors on the sidelines

Financial markets are bracing for President Trump’s Republican party losing control of the House of Representatives, while retaining the Senate.

A political gridlock between the White House and Congress could hinder President Trump’s pro-business agenda and raise concerns about political instability, but most analysts say this may not be the worst outcome for the stock market.

Many fear that there could be a sharp selloff in the market if the Democrats sweep both the House and the Senate. In contrast, stocks may rally on hopes of more tax cuts if Republicans retain control of the House.

Some respected market gurus do have predictions of how the market will react.

Billionaire Thomas Peterffy, the founder/Chairman of Interactive Brokers predicts that the stock market will dive up to 15% should Democrats take the House and Senate in the midterm elections. He says the market will surge back to record highs if Republicans retain control and ward off a Blue Wave Tuesday.

“If the Republicans win, the market is not going go down. The market is going to go up,”

Tuesday, the major US stock market indexes finished at: DJIA +173.31 at 25635.01, NAS Comp +47.11 at 7376.16, S&P 500 +17.14 at 2755.59

Volume: Trade on the NYSE came in at 815-M/shares exchanged

  • NAS Comp +6.9% YTD
  • DJIA +3.7% YTD
  • S&P 500 +3.1% YTD
  • Russell 2000 +1.3% YTD

HeffX-LTN’s overall outlook for the major US stock market indexes is now Neutral to Bullish

Stay tuned…

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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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