Stocks finally pull back, as does Obama’s agenda

SPwkly0122It was quite a holiday shortened week. On Tuesday the market rallied even further into overbought territory, lead by the healthcare sector, as it became increasingly evident that Brown would win the election. There were no exit polls to suggest the probabilities had increased throughout the day, and the tracking polls hadn’t changed. However, the most accurate measure was the steady increase in the price of his futures contract on Intrade. Polls can be influenced by the selection of the sample if the pollster has a right or left bias. But those who put real money on the line seem to be better than the polls, at least on election results.

Stocks began to sell off the morning after the election. As was expected NBC, especially the C and MS versions, were quick to point out that the market wasn’t too pleased with the election results. I don’t think any of their viewers were dumb enough to buy that, and their take on the market and election had very short legs. In reality the market was hit by news of China tightening credit, Greece credit problems, and prospects for another Bernanke term in doubt. But the quickest drop in the market occurred during the Obama telepromter reading when he announced bank regulations. Whether or not his proposals had any merit or if they have a chance of being implemented I don’t know. With my bias against Obama I would assume they will be bad for business and for the country and will discourage banks even further from lending, which will be bad for any possibility of a recovery. But that might just be my bias. And the political climate seems to be making a rapid shift. Hopefully this shift will put the kabbash on where Obama wants to take this country, which in my opinion will be bad for the stock market in the long run. I really don’t think Obama gets it yet. I was waiting for him to blame Bush for the huge defeat last Tuesday. He didn’t disappoint. Well, he didn’t mention Bush by name, but did say it was the same discontent from the previous eight years that enabled Brown win. Now wait a minute, he’s been president for one year, so that means people were only upset with Bush for seven years, and they have been upset with him for the whole year he’s been in office. If he keeps using that same phrase about the previous eight years he may want to consider dropping it or at least update his arithmetic. It is really getting tiring listening to someone complain about all the problems he inherited. Reagan and Bush both inherited bad situations, but they took charge without blaming anyone. If he weren’t so disconnected he might realize that blaming the past can only work for so long.

If I were more suspicious I might think the timing of his bank regulation comments were politically motivated. He took a big hit. What better way to get the public back on his side than to hit hard at Wall Street banks. He blamed them for the mess we are in, along with Bush of course. Doesn’t more blame belong with Fannie Mae than with banks? If he wants to blame the past doesn’t some blame go to the change in congress in 2006 and Chris Dodd and Barney Frank?

In previous posts I mentioned the possibility that the market rally was an inverse reaction to Obama’s declining polls numbers. The above chart is from the most recent Gallup poll. There are other polls that show an even steeper downtrend. I do believe the defeat last Tuesday will lend more support to this trend going forward. But the market has been quite overbought, with very little corrective action since the move began last March. It was like a bubble looking for a pin. There were actually four pins the last week. The daily chart shows the S&P taking out the entire gains for the year plus some. So the uptrend has been violated on a short term basis.

The chart way back at the top of this post shows the weekly S&P etf, along with the adaptive CCI in the sub-graph. I like to use this CCI to show trend strength when the CCI is beyond the 100 lines, which are the dashed cyan lines. This last week the CCI crossed back below the plus 100 line. You can see that the CCI also dipped briefly below the 100 line twice previously during the longer term uptrend. However, the trend stayed positive as defined by the blue moving average lines over the price bars. These pullbacks were good buying opportunities by looking at the longer term chart. The daily chart may have convinced a trader to turn bearish, but the weekly chart kept a better perspective and kept the trader on the correct side of the trend, at least in the longer term. Price is still in an uptrend on this chart, although momentum may be slowing a bit. If price can hold at or near the darker blue line then maybe another impulse higher can still be achieved after this much needed correction. If price breaks that line and those lines reverse position, then perhaps the much advertised double dip will be in the cards.

For now I’ll try not to get too bearish on the longer term, which is hard not to do when looking at the news. But maybe the news will be getting better. Tuesday might have been a good start. We’ll see.