The rank and file American watching, what must seem to be an endless stream of chaos on the evening news, must be somewhat confused about why none of the chaos seems to result in negative consequences for those holding political power. This “Teflon” phenomenon has been well documented over the decades regardless of the label of the presiding administration.
Democratic president, Jimmy Carter, lamented a “national malaise” as high inflation, an energy crisis, hostages in Iran, and a stock market reflecting the uncertainty of the times. President Carter was turned out of office, as virtually everything his opponents threw at him stuck. Another Democratic president, Bill Clinton, got caught up in a “flute tooting” episode gone public, and not only survived as the stock market was roaring higher, but the attempt to impeach him failed, and led to the demise of Republican Speaker Newt Gingrich, and a huge wave election victory for Democrats running for the House. Republican president, Ronald Reagan, survived a one day stock market crash of almost 25%, and the Iran Contra Affair during another big bull trend in the stock market. Need I even mention Richard M. Nixon going from a landslide re-election to that uncomfortable to watch walk to Marine One after his resignation, as the Dow had been knocking on 500, down from 999. Yes a 50% bear decline, which was just one of multiple roundtrips between 500 and 999 from 1966 to August 1982.
Republican president George H. W. Bush won an extraordinary and quick war in Iraq, but was turned out of office when a very modest, and short lived, recession in 1990 weighed negatively on the stock market, and its attendant social mood. The bottom line in these observations is bull stock markets tend to wrap presidents in a form of political Teflon, which effectively deflects the attacks of the opposition. However, as the George H. W. Bush example so clearly illustrates, woe be unto any president unfortunate enough to preside over even a relatively mild bear stock market. Even George W. Bush sailed along with the wind at his back, September 11, 2001 notwithstanding, until summer gave way to fall 2008 and a free falling stock market, which swept Democratic president Barack Obama into office.
I’ll go out on a limb here and say that regardless of the attacks of his opponents, or his low poll numbers, Mr. Trump will be re-elected, if the bull stock market is still in place as summer turns to fall in 2020. On the contrary, if a bear stock market is firmly in place, then Mr. Trump’s presidential Teflon, which has served him so well, may go the way of the dinosaur, and virtually everything thrown Mr. Trump’s way will begin to stick. If a mild bear trend can take down Iraq war victor George H. W. Bush, then one can only imagine what a significant bear trend may hold for a much more unconventional, and controversial, president like Mr. Trump? If you want to know who will win the presidency in 2020, then watch the market and not the hype on the evening news.
We have been warning clients that volatility would likely increase as the 2020 election looms on the horizon. These last several days have seen the first volatility episode of the 2020 election season. It will very likely be followed by more episodes, which should be viewed as opportunity in disguise. The stock market has been gyrating several hundred Dow points a day in chaotic fashion. So far the damage to the underlying positive balance of supply and demand has been minimal according to a number of supply and demand based objective measurements. However, the recovery from the decline of the last several days has now reached an important math resistance zone, so what happens over the next several days may be an important “tell” for what is likely to happen as the calendar turns from spring to summer.
TATY — A FAMILY OF BIG PICTURE STRATEGIC SUPPLY AND DEMAND INDICATORS
TATY is shown above in the first attachment in yellow with the S&P-500 index overlaid in blue and red weekly candle chart format.
The decline over the last several days has pushed TATY into the red zone surrounding the 140 level on the chart. When this indicator is making bottoms in, or near, the red zone, then an established bull trend is likely to continue, as bottoms in the red zone are historically signs of strong demand and relatively weak supply. While the daily volatility has been quite high, this indicator tends to take out the daily noise, and can often tell investors important information about the big picture trend. As long as this indicator does not paint into the caution zone surrounding the 115-125 level the strategic picture will remain favorable. As long as the strategic picture grades out as favorable, the potential for an assault on new all-time highs will also remain favorable, once the current weakness has run its course.
SAMMY — A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS
SAMMY is shown above alone, and below with the SPXL 3X leveraged exchange traded fund (ETF) overlaid.
SAMMY has completed the required elements noted last week for a tactical buy signal, and with the strategic indicators remaining positive, we have undertaken a buying program to soak up some excess cash. Purchases were made on weakness after our premium/discount indicators reached into their discount zones. Putting cash to work when often fleeting discounts to “value” are being offered tends to lower risks, and raise the probability of such purchases becoming profitable sooner rather than later. This is a game of probabilities and not certainty, so not all of these kinds of trades will be winners, but such a discipline has been demonstrated to be successful in the aggregate over time.
In order for this latest trade to reward investors, the resistance zone shown on the last chart above must be successfully navigated. It is beyond the scope of this brief update to get into a teaching discussion about important math support and resistance levels, but clients need to known that there is a substantial body of evidence, which shows that such calculations tend to be useful in application. The resistance zone shown above on the last chart may take several days to overcome. The zone lies between a 50% to 62% retracement in the decline to date from the high. If the market can work higher than the 62% retracement level at S&P-500 2895, then the odds of a renewed assault on new all-time highs will rise significantly.
On the contrary, should the rebound rally stall in the math resistance zone between S&P-500 2878 and 2895, then the implication would be that the correction may run longer and deeper, and likely take out the recent low at S&P-500 2801.
THE BOTTOM LINE
A SAMMY tactical buy signal is now being tested at math resistance between S&P-500 2878 and 2895. A continuing rally above S&P-500 2895 resistance would significantly increase the odds of a renewed assault on new all-time highs. A rally failure at the resistance zone would imply a longer and deeper decline may be needed to rejuvenate demand sufficiently to mount the next assault on new all-time highs.
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