1. The Midterms: When the Noise Gets It Wrong…Initially At Least
Last night, Republicans lost the U.S. congressional races in a very big way. Embarrassing on all fronts possible.
Going into this, everybody had a feeling Democrats would win, but analysts were thinking that if Democrats won, the stock market would fall really hard.
This morning, markets are up, gold is up, oil is down, and yields are down. That’s the complete opposite of what we were told before the election.
This is what you call the noise being wrong.
Obviously, it’s still early in the day, and we’ll see how it all plays out. But the initial shock is on the opposite side, not the selling side.
2. Gold Reclaims $4,000: A Long Battle Ahead
At the time of writing, gold has crossed back above $4,000, with spot currently at $4,039. Let’s see if it holds throughout the day.
If $4,000 holds, some buyers could come in. But for now, we have to watch this level very closely. If gold doesn’t stay above $4,000, more sellers could step in.
If gold decides to move to the upside, there will be a big battle ahead. It would have to break $4,100, then $4,200, and then around $4,450. Above that, you’re looking at $4,700.
On the downside, below $4,000, the next big support level isn’t until around $3,300 to $3,500.
Silver is bouncing too, trading at $52. But keep in mind: when support breaks, it becomes resistance. The big support level for silver was around $53 to $55, and silver would have to clear that range to get more attention from buyers at the moment.
Overall, metals are catching a bid this morning, with platinum and palladium also moving higher. These metals have been struggling for a while.
3. Oil Sheds Its War Premium, For Now
Oil prices are coming down even as the war rhetoric remains strong.
We’re now hearing that Iran “will” apparently used chemical weapons, according to Israeli intelligence, but the oil market doesn’t seem to be paying much attention to it.
WTI is trading below its 50-day moving average at the moment, while Brent has come down to around $100 per barrel. Not too long ago, it was at $117. That’s a big decline in the oil price in a short period of time.
The oil market is trying to take out some of the war premium, but the situation remains very fluid. Things could go wrong at any moment. By the time you’re reading this, there could be a social media post about the war, and oil could be higher.
As we’ve been saying for weeks, oil has been very reactive to headlines. If headlines turn bad, oil could bounce higher. If headlines turn toward peace, oil could move lower.
4. Stocks Rally, and the Rotation Continues
The S&P 500 is testing its 50-day moving average this morning. Let’s see if it holds.
Interestingly enough, the post-midterm bounce has closed the gap that was left open just a few days ago. But a new gap has now been created between yesterday and today. We’ll see how that holds.
Once again, the market is reacting opposite to what we were told just before the elections.
Tech has been the problem for the past couple of weeks. It’s tech that has been selling off and making the indices look worse, while other sectors are doing okay. In fact, it almost seems like there’s a move from growth to defensive sectors, as investors may be focusing on some sort of capital preservation.
Bond yields are also coming down a little today, so it’s possible some money is rotating from equities into bonds as well.
5. Bitcoin Bounces Back to $80,000, Canada Trade Deal & Jobs
Bitcoin is bouncing big too. It sold off a little overnight as the initial results started coming in, but it’s currently trading at $80,000 after finding a decent amount of support between $76,000 and $77,000. It still has its 50-day moving average overhead, around $82,000, which it has to cross before more buyers jump in.
Just before the elections, there were headlines quoting Prime Minister Mark Carney as saying the U.S. was asking for less and offering more. I guess there was a desperate attempt to get a deal with Canada?
Countries that waited until the midterms are likely going to get a much better deal now than they would have even a week ago.
Keep in mind, Friday is jobs data day. We’ll be watching closely, as the job market has shown signs of weakness. Job numbers out of Canada and the U.S. could have consequences for consumer sentiment as well. This Democratic victory could also add to more optimistic sentiment in the coming months. But again, it’s too early to tell. We’ll be watching this closely.