Skating the razor’s edge with the INDU and SPX

2010-10-29-indu
http://stockcharts.com/h-sc/ui?s=$INDU&p=D&b=5&g=0&id=p75064008702&a=203281655

Here is a good look at what has been a rough patch for everyone.  The WSJ is recording that all the big bad trading firms have taken gas (not natural gas) during this period, and it’s understandable.  Trends are where you make money and they’ve been short and hard to come by during this period.  We have already noted that price is drifting across the trendline from late August.   We think it is more ominous — or portentous — than that.  The markets are virtually all in a sideways drift as the musical chair players are getting read to dash for the chairs the instant the music stops.  Will it stop Tuesday?  Will it go up?  Will it go down?  What will happen if the the Rupublicats rule the back yard fence?  What will happen if the Democats surprise them and scratch their eyes out?

Beats us.

But according to our systems and chart analysis investors should be long.  Of course there is always an alternative — that tactic which comes in when a trendline break is occurring — hedged.  At the very least you should have some shorts in your portfolio.  We read in the WSJ that many traders are buying puts to protect their gains from this period — and they are good gains.  You could also sell covered calls.  Or you could buy short ETFs to hedge your long positions and wait to see who’s left without chairs when the shooting starts.

2010-10-29-spx

http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=6&dy=0&id=p35413284069&a=207879904

It is difficult to imagine that there won’t be some shooting looking at a close up of the SPX here.  The last 13 days — vividly illustrated here — are a picture of a Mexican standoff. (Close to close a difference of 5.16 points!)  Everybody is afraid to make a move because — in spite of the WSJ doing all it can to spin the election into a victory for the bad, the angry and the ugly (cue Clint Eastwood music) —  no one knows what the election results will be.

We don’t see much upside if the Rs win — though we do see a depression (like our colleague, the Nobel laureate Paul Krugman).  If the Ds win the market will commit suicide.

Withal, it is interesting to watch lemmings run full tilt at a cliff.

2010-10-29-qqqq

http://stockcharts.com/h-sc/ui?s=QQQQ&p=D&yr=1&mn=0&dy=0&id=p20970412253&a=212514247

The Qs are hugging the trendline for dear life.  Has to end.

Time for new waves in all these markets, and time for a resolution to these patterns.  The longer it delays in coming the more violent it will be.

We are talking short term.  Whichever of our despised parties win, after they screw up the country in the short term we expect the economy to sort itself out and embark on a new powerful bull market.