Markets turn lower as politics move centre-stage

Abraham George Macro View

Are we at an inflection point? Many signs are pointing to that but we are not sure. So let’s dig in. There’s a lot of politics that’s being played that cannot be explained effectively. All of a sudden we have three vaccines from leading pharmaceutical companies claiming better than 90% efficacy. It is commendable for such an insidious disease, the scientists found the right mix of proteins and formulated a vaccine in under 9 months and all were released just days after the election.

The market seems to be underpricing the risk of some of the chaos surrounding the election. The Republicans are in favor of a $500 bio relief package but Pelosi is not interested. She saw this coming. It is all about applying pressure to the Senate to get funding for the Biden agenda, i.e. a multi-trillion dollar spending plan through renewable energy and climate change issues to transform the American economy. This will not come through deliberate action through elected officials but as a ransom payment to give suffering people some relief.

Meanwhile Trump legal team has been gathering evidence to present a fraud case. Trump has invited Republican lawmakers from Michigan to the White House for more explanations and discussions. This voice can get more louder and bigger. There has been a price reversal yesterday. Is it the beginning of something. Let’s find out.

Equities

Are we seeing a pause that will continue with a rally into 2021 or is it that the Nov 16 high which was not confirmed by the S&P 500 and Nasdaq a top. The strong breadth and up volume on Friday and Monday argues for further advance but the completed five wave rally indicates that the top may be in.

A lower high was made in the S&P 500 at 3637 on Nov 16. The movements since then has been sideways to lower. If the market moves below 3506.50 the low of Nov 10 greater bearish potential exists.

Bonds

Bonds carried to 173^15 retracing 0.618% of its recent top to down move. If this is a counter trend rally as we believe it is, the next move down should target the low of 167.

Euro

There is nothing much to add to euro analysis as we continue to look for higher levels.

Gold

Gold is tracing out a complex zigzag pattern but as we expected the pressure is to the downside. First support comes in at 1835 but think prices will move down to 1760.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.