QE, the Elections and the Market

Posted: Oct 05, 2012 12:01 AM

With the Presidential election debate bringing the election back into focus, investors might start to toy with the idea of how one "games" the election. After all, Romney has said if he is elected, he would fire Bernanke and end quantitative easing. Would the market's perception that QE could be come off the table cause a sell-off in stocks and precious metals?

Some of this is unclear as a Romney administration might also be perceived as providing an inflection point in current economic policy towards one that is more business-friendly, unleashing the entrepreneurial component of the U.S. economy. After all, 80% of all new jobs are created by small companies, and so this could balance any perception of the end of QE. As well, how Romney ends QE is also a matter of discussion since he would be made aware that an abrupt end to QE could wreak short-term havoc in the markets. But can investors truly "game" the election? We tend to think not, and urge investors to rely on the real-time price/volume feedback from the market alone.

Currently the market remains in a short-term correction that has taken the indexes down all of 2% from their recent price peaks. The past two days have seen the market gap-up on the opening only to reverse and close well off the intra-day peak. However, we are not seeing distribution picking up, and yesterday's action simply saw the general market finish near breakeven on lower volume. This morning's ADP jobs number beat expectations of 133,000 new jobs, coming in with a number of 162,000, giving the futures a slightly positive tone for today's open.

AAPL bounced off its 50-day moving average to close in the upper half of its trading range yesterday on higher volume, a normal show of support at this critical moving average. Aside from that the action in leading stocks remains quiet and we continue to wait and watch for potential new buy points in the form of pocket pivots.

Silver and gold appear poised to break out to new highs as they form mini-cup-with-handle type formations over the past couple of weeks and hover just below resistance levels. Investors should remain alert as a new buy point in the precious metals ETFs could soon be at hand.