Tom’s Weekly Newsletter November 16th, 2022

Originally published via our newsletter previously. Subscribe for early access!

Mid-Term Elections and How they Will Affect the Markets

There are really three scenarios that could play out with these midterm elections.

The Democratic Party controls congress and has/keeps the majority in both the Senate and the House.

The Red Wave happens, and the Republican Party gets control of both.

Or the more likely scenario of a split of the two houses happens where each party has control of one of the two, (Dems keep the Senate and the GOP gains control of the House), resulting what is called a ‘Split Congress’.

If a Split Congress happens, do you know what I call that?  Gridlock!

And Gridlock could be a good thing for the markets.

The key thing to do, as I see it, is find out what sectors of the markets will benefit from whatever outcome happens. Prepare to start your research and run your bullish or bearish scans on the sector based on your anticipated direction for it post the mid-term election results.

Fore example. Even in a split where the GOP gains control of the House could make for less government regulations for Big Tech, which may, even a little bit, be appositive for that sector.

Complete GOP control could help Oil exploration companies even if that much congressional control of congress has the chance of weighing on oil prices, (according to analysts from Citi).

Corners of the Market

SPY – SPDR S&P 500 

TLT – iShares 20+ Year Treasury Bond ETF

Old support at 98 became new resistance.

I will keep hammering home this pattern every chance I get as it is a very common technical pattern that seems to work a great deal of the time.

The slide from that new resistance hasn’t reached the most recent pivot low, but it is still a possibility.

That will be the price area to watch as new lows have been taken out with a fresh, newer low forming on the chart all year.

Right now, TLT is in the range emphasized with the solid, horizontal green lines on the chart image above.

The CPI report is out tomorrow.  According to JP Morgan Chase’s trading desk a number above 8.3% could be big trouble for the stock market.  I would say that would help TLT as equities and bonds trade inverse to each other, but this year that has NOT been the case.

UUP – Invesco DB US Dollar Index Bullish Fund

Here’s a news headline from etftrends.com

Rising U.S. Dollar Will Put a Large Dent in Corporate Earnings

I will go over what we are seeing in the chart above next, but first understand the increase in interest rates helps in bringing about a stronger US Dollar.

Now if you are a US Dollar bull you like to hear that and have seen a strong year.

But what that does is cut into profits for companies.

We have seen equities run higher off the October lows and up until today it seemed the momentum might continue.  Let’s see if the CPI regains today’s lost bullish momentum or not.

If it does that might lead to the price action in UUP breaking lower from the descending triangle pattern it is in.

USO – United States Oil Fund, LP

USO had a bearish day.  For the second day in a row,

The concern for the bulls is not only is this the second day in a row, but today’s price action broke an ascending support established from the run in USO off its late September low.

The most recent pivot high is now a price point that is considered a resistance.

It is also the higher price point from the current price needs to be clears in order for us to feel bullish USO.

There are two horizontal, dotted, green lines highlighting possible support areas for USO should it continue to slide.

Once again the CPI report is brought up as the number could either exacerbate selling or stop this bit of a drop in pricing.  Keep in mind the mid-terms as the GOP may take back the house and this could bring a bit of bullish interest to oil.

GLD – SPDR Gold Shares

GLD has been trading in a choppy manner over these past two months.

Where it has been trading in a bearish manner for months since late September it has tried to clear and sustain a price above 160.

Case in point this move above 160 today did not stay there and the day was a slight bearish reversal day.

Realize GLD had a nice move off 150.5-151 price support to this 160-price area.

I slight bearish day may not indicate price wont trade higher and a breach of 160 again can’t happen.

The thing that gives me pause is my seasonal scanning tool Money Calendar shows a past 10-year history where bearish patterns have taken place.

I encourage everyone to go to the Money Calendar Tools to see for yourself.

Case Study

Ahh heck with it,  I’ll show you what I am talking about with GLD and it’s current bearish seasonal pattern history.

Here is the view of Money Calendar for November

You can see the entire month is color coded green.  That is a reflection of the numbers you see in each of the date boxes where of the total number of patterns that show a security moving higher or lower over a set period of days with a start date of THAT day – there are more bullish patterns than bearish.

But, if you frill down in to the actual days lists and you see what, if any patterns there are for GLD, this is what you will see.

Well, here is a pattern for GLD with a start date of tomorrow, Thursday, November 10, 2022.

This is not the complete list for the day, but it does show that GLD, like in previous days in the month, is showing a 10-year historical pattern where it  has traded down in price.

It has a positive power meter which means the average profitable move amount (for a bearish pattern the profit move comes from a drop in price where if one shorted the security at the price on the start date and bought to cover at the end date the result would have been a profit), in the more recent few years is greater than the average profitable once over the cumulative 10 years.

It shows the 10-yr avg price move is $3.81 and the accuracy is 90%, meaning 9 of the past 10-years over those numbered trading days GLD has dropped by an average of that amount.

Money Calendar is a price scan, meaning it accumulates data showing what a security (stock or ETF) has done over specific trading day ranges over the past 10-years.

If the security make a move 9 or 10 of the pat 10-years it makes the result list.

This 9 or 10 of the past 10 years is what we mean when we says it has a 90% or 100% success rate of making a move higher or lower over the past 10 years.

It does not guarantee the security will make that move again over this period of days again this year, but being pattern traders using options for those trades, we want to trade securities that have made consistent repeatable patterns.

Again, we are options traders, so instead of trading the security itself in the manner of going long or shorting the stock, we look to trade bullish or bearish options strategies based on these historical, seasonal patterns.