In my opinion, the next eleven sessions should shape up as a battle between the status quo and those who want a new direction. The bull market, getting very long in the tooth, is overdue for a correction. But, the administration, the Fed, and some on Wall Street need to keep it afloat for eleven more sessions — as a tumble in the weeks before an election wouldn’t be good for business.
The New Order thinks a tumble would be just fine. It would expose the soft underbelly of the status quo’s approach and encourage the electorate to reconsider the current path.
Wall Street, which has benefited enormously from the Fed’s largesse, has reportedly thrown their support behind Romney. Are they really ready to bite the hand that feeds them, or are the Romney donations simply a way of hedging the downside in case the current guys are thrown out?
In any case, I think the next two weeks will be largely range-bound — but, possibly very volatile — as the two forces duke it out for control. The euro-zone obviously is working very hard to keep things together a little longer. The following chart shows the negative overall trend (the big red channel) for the EURUSD, which should have seen the pair back to the channel bottom by now.
But, the jawboning and monetizing that boosted prices out of the falling yellow channel in January has kept the pair vacillating about the midline ever since. I believe the pair will fall hard sometime in the next three weeks. Whether it happens before or after November 6 is the only question.
Prices can remain in the red channel through then quite easily. Even a loss of the red channel and support by the purple mid-line would be “positive enough.”
Likewise, the dollar is due for a breakout, but has been kept in check both by additional rounds of QE in order to prop up the current markets. Whether it will break out before or after November 6 is the only question.
Stocks have reached important support from a channel perspective, so remain at risk for a significant break down if they don’t bounce very soon.
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