A Change in Thinking
The summer (June-September period) that has just ended has seen a sideways trading market with extremes of 1010 and 1130 on the S&P 500. The central area for that period has been around the 1080 area. We plan to get out of the majority of our short positions next week on any dips to that area and may even get a bit net long in some areas. The long dollar / short gold position is starting to breakout and we plan to hold it in the portfolio. We don’t see a big rally but a breakout of the summer highs looks like it is in the cards and 1150 on the S&P looms as a target.
The election process coupled with a little better economic news will be the primary mover. Expectations of a Republican resurgence will motivate Wall Street to be more positive on the markets.
As we get close to election day the real play will evolve. Here is my crystal ball thinking. I would expect that the expectations will move to close to 50/50 from the 70/30 current Republican expectations of retaking Congress. Then the market unfolds. If the Republicans do take back the House and Senate the market will rally back to the May 1220 S&P highs before austerity takes over and the economy collapses and makes new lows below the March 9 2009 lows at 666 and makes the Elliot Wave believers the heroes of the long cycle. If the Democrats pull off a surprise holding action and hold their majorities look for a quick Wall Street capitulation move to technical support at S&P 890 before the market and economy takes back the action and pushes to the May 2010 S&P highs and beyond.