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Market Outlook: Bavarian bombshell

Worst election result since 1950
October 15, 2018

Chancellor Angela Merkel’s allies in Bavaria, the Christian Social Union, won just 37.3 per cent of the vote, only the second time it hasn’t won an absolute majority since 1962.  Bavarian premier Markus Soeder said, ‘’we accept the result with humility’’.  The party must now form a coalition, possibly with the Greens who came in second place, but probably not the far-right AfD who managed 10.7 per cent and seats in the state assembly for the first time.  Recall that Sweden, where the centre-ground also had a disastrous general election on the 9th September, still has no government and the Alliance bloc’s Ulf Kristersson over the weekend gave up trying to form one.

Larry Kudlow, White House economic advisor told Fox News over the weekend said of last week’s stock market falls, ‘’I think the background is very positive for the stock market and I think…corrections come and go and people should…stay very calm over these things’’.

DAX 30

Consolidating under the key 11720 level late last week in what might be seen as an inverted pennant.  Last week’s close below 11600 completes a massive head & shoulder top that has been building since February 2017.  Momentum is more bearish than it’s been since then and measured targets form the formation are 10600 and 10000.

 

SHORT TERM TRADER:  Short at 11600; stop above 11800.  Target 11200.

 

POSITION TAKER:  Short at 12100; stop above 12000.  Target 11200, the half-way mark of the rally that started late in 2016 and maybe 10600.

FTSE 100

Another chart with a possible inverted pennant formation and a weak weekly close.  Mind you, still holding inside the massive broadening top that has been building since January 2017.  Another Brexit showdown in Brussels Wednesday with EU leaders choosing to meet for dinner, presumably to lend urgency to the proceedings and make it look as if they’re actually doing something.

 

SHORT TERM TRADER:   New short at 7025; stop above 7200.  Target 6400.

 

POSITION TAKER:  Square but looking to re-sell.

S&P 500

Momentum only just turned bearish on the weekly chart and last week’s slide was comparable to the one in February.  A number of indices around the world are seeing a death cross, where the 50-day moving average drops below a descending 200-day one.  These are not bullish signs at all!

 

SHORT TERM TRADER:  Square and looking to re-sell.

 

POSITION TAKER:   New short at 2770; stop well above 2820.  Target 2600.

BRITISH POUND/US DOLLAR

Mercifully quiet, with a tiny upside bias, though pundits might lead you to believe otherwise.  Foreign exchange not exactly where it’s at right now.

 

SHORT TERM TRADER:  Cut out my long position with a small profit this morning.

 

POSITION TAKER:  Square.

EURO/US DOLLAR

Clearly back inside the 1.1500 to 1.1800 band. 

 

SHORT TERM TRADER:  New small long at 1.1550, more for the readers’ sake than any conviction on my part; stop below 1.1400.  Target 1.1770.

 

POSITION TAKER:  Square.

GOLD

A pathetic little bounce in the scheme of things but at least it’s no longer oversold.   

                            

SHORT TERM TRADER:  Square.

 

POSITION TAKER:  Square and no real idea where we are in the longer-term picture.

Nicole Elliott is a long-standing member and Fellow of the Society of Technical Analysts and has taken over the IC’s trading coverage.  She is regularly interviewed and quoted by the financial media, is a conference speaker, and author of several books on charting.