Even though the US election is now done and dusted – with exactly the result I had expected – American politics could continue to dominate the agenda in financial markets for some time to come yet. The big issue now becomes the fiscal cliff, which the country’s lawmakers need to negotiate in order to avoid an automatic plunge into recession in 2013. While I predict a compromise will be reached before disaster occurs, it is likely to cause further jitters in the markets meanwhile, rather like last year’s standoff over the Federal debt-ceiling.
Of the European indices, the DAX looks the more interesting play for now. I am a mild bull on the German market therefore. However, I am on guard for further weakness in the Euro, given both the weak economic data releases coming out of the Eurozone right now and the lack of resolution of the Spanish situation.
Click here for analysis of the European markets.
Obama’s victory has bolstered expectations of further monetary looseness ahead, which is dollar-negative and gold-positive. The US has yet even to begin its deleveraging process at the Federal level, and inflation is going to play a key part in this process, just as it did in the post-war era. The long-term bull-case for gold is well underpinned, therefore.
Gold and other commodities have leapt overnight in response to the election outcome, and in many cases are back to levels where I’d be seeking long positions. I am slightly wary, given the risks from the fiscal-cliff issue and from renewed angst over the Eurozone. However, I am ready to join the new uptrends so long as their first pullback isn’t a complete reversal.
Click here for analysis of commodities and EURUSD.
WALL STREET OUTLOOK
There is no obvious end in sight to the ongoing correction on Wall Street, with the overnight Obama feelgood factor spilling over into renewed losses today. These are treacherous conditions for trading, given the erratic nature of the swings. If one is to trade these moves at all, trading in small size is surely the only way to go. I am sticking for now to my moderately bearish near-term outlook for US equities. Time factors suggest potential for a bottom over the next few days, but it is the price-action that counts most.
Click here for analysis of the US indices.
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Dominic Picarda is a Chartered Market Technician and has co-ordinated the IC's trading coverage since 2006. He is a regular speaker at trading and investment events and also holds the Chartered Financial Analyst qualification.