Will The US Midterm Impact US Indices?

First off apologies. I was off the air because of my gig in Thailand – huge success. So, I was looking to start posting this Monday. Murphy’s Law: came down with some sort of tummy virus. On the mend, still not 100%. But, given the state of the indices and the mid-terms on November 6, I wanted to share my views – just in case you find them useful.

Let’s start with the technical picture.

If I had the time, I’d look at the four indices – S&P, DJIA, NASDAQ and Russell 2000. But, I don’t. So, I’ll look at the S&Ps as a proxy.

The black lines represent a rough approximation of the 13-week swing (quarterly trend). We saw an Upthrust Change in Trend Pattern which augurs the Primary Buy Zone (2576 to 2532) as the minimum target

Next, let’s consider last night’s price action. Following Wednesday’s sell, yesterday, we saw, in the cash, a gap up. The question is: was the gap a breakaway or mid-way? The former suggests we have seen the lows; the latter implies a target beyond the Primary Buy Zone.

Given the volume and range, I think the bearish interpretation will prove correct.

Consider the next two charts. Both show yesterday’s volume. The first shows the ATR from the 09-21 high; the second the ATR since the range acceleration on 10-01.

The first chart is the more bullish of the two, but it still lends weight to the idea of the gap being a midway one. The key factor is the volume/range relationship. The greater than normal volume but only normal true range suggests that the buying pressure was unable to overcome the selling. If that is true, then the gap cannot be a breakaway gap, leaving the midway as the probable explanation.

The second chart shows that yesterday’s buying volume produced a below average true range. The implication is the sellers were in control. If this is correct, we’ll see a mild sell-off tonight.

Tomorrow, I’ll look at the impact of the midterms.