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Midterm

Market Impacts: from Midterms to Second HalfCME: Micro E-Mini Nasdaq 100 ( CME_MINI:MNQ1! ) On August 17th, I published “Market Impacts of US Midterms Elections”. Thanks to your support, it made it to “Editors’ Picks” and was featured in TV Digest newsletter in an email themed “Midterms are Coming” to all subscribers. With the midterm elections coming to an end, it’s a good time to reassess the situation, exploring potential changes in economic policies which may give rise to trading opportunities. In the August 17th story, we have discussed 3 potential outcomes of the midterm election: • Party Government: The President, the House and the Senate are controlled by the same political party • Divided Government: Only one chamber of Congress aligns with the President • Opposing Government: The President and the Congress are from different political parties Before the elections, the Democratic Party controls the White House and both chambers of the Congress. It was clearly a “Party Government” under our definition. As of this writing, Democrats clinched 50 seats in the Senate. With the tiebreaking vote from Vice President Harris, Democrats retain Senate majority. Meanwhile, Republicans lead 212:204 in the House race but has not reached the magic 218 required to flip controls. GOP represent half of the voters in this election. They hold on to at least 49 seats in the Senate, gain more seats in the House, and are likely to retake control. They also have governorship in half of the 50 States. So, why the Midterms are being perceived as a landslide victory for Democrats? It’s all about expectations. Historically, midterms are bad for the ruling party. Whichever party in the White House usually loses seats in the Congress. In the 2018 midterms, Nancy Pelosi led the Democrats to recapture the House of Representatives. With Biden’s approval rate hovering at 40% low, and inflation rate flying high, GOP was widely expected to have a stunning victory at both chambers of the Congress. To the Democrats, the absence of “Red Waves” is a vindication of their political agenda. While a “Divided Government” is still possible pending final results, Biden and Senate Majority Leader Chuck Schumer already claimed election victory. Conclusion: the emboldened Democrats will go full speed with “Build Back Better” in the second half of President Biden’s presidency. Bigger Spending In the last two years, the Biden Administration passed legislations with budget over $4 trillion. These include: • American Rescue Act in March 2021, $1.9 trillion • Infrastructure Investment and Jobs Act in November 2021, $1.2 trillion • U.S. Chip and Science Act in August 2022, $280 billion • Inflation Reduction Act in August 2022, $757 billion Also in August 2022, the Administration announced a Student Loan Forgiveness Plan that is expected to cost $400 billion. The plan is currently on hold by court orders. In the First Half, new budget items averaged $2 trillion a year. I expect more big budget items to come in the Second Half. If Republicans are not there to slow down the legislative ambitions, it’s hard to tell how big the spendings will be. Bigger Deficit and Bigger Debt According to USDebtClock.org, the 2022 Federal Tax Revenue is estimated at $4.92 trillion, and the Federal Spending Budget will be $5.98 trillion. The shortfall is Federal Budget Deficit, at $1.06 trillion. The largest federal budget items are: • Medicare/Medicaid, $1.490 trillion, (24.9%) • Social Security, $1.231 trillion, (20.6%) • Defense/War, $770 billion, (12.9%) • Interest on Debt, $481 billion, (8.0%) I notice that debt interest has risen by $39 billion from previous estimate, and its share in the federal budget grows from 7.4% to 8.0%, thanks to the Fed rate hikes. US National Debt is estimated at $31.3 trillion. Budget deficit needs to be financed by debt. Therefore, national debt would rise to $32.5 trillion next year at a minimum. While many bonds were issued before 2022 and carried low yields, new Treasury bonds must pay current market rates. Considering Fed Funds already at 4%, I put 3% down as my estimate for weighted-average federal debt service rate in 2023. This would price the annual debt interest at $975 billion, which is 103% higher than this year, and $205 billion more than the Defense budget! With Democrats in control, I expect Medicare, Medicaid, and Social Security to get favorable budget allocation next year. Heightened geopolitical tensions in multiple fronts justify a bigger Defense budget. Assuming all of them goes up by 5% and there is no change in other budget items, my baseline forecast for 2023 federal budget is $6.65 trillion, an 11% annual increase. Assuming tax revenue goes up by 10%, we will have a budget deficit of 1.23 trillion, a 24% jump from 2022. Big spending legislations could add $1 trillion more on top of this. Sticky High Inflation The US economy is caught between restrictive monetary policies and expansive fiscal policies. When trillions of dollars are flooding the economy and the financial system, prices of goods and services tend to go up. Raising interest rates alone is not sufficient to bring the price level down. This is why inflation is still uncomfortably high after six consecutive rate hikes. Cathy Wood recently flowed an idea claiming inflation could turn negative next year, citing similarity from the Roaming Twenties. I peg to differ. The Federal Government is pumping $6-7 trillion in a $26 trillion economy. Every year, federal agencies and contractors get bigger budget, government employment grows, and federal employees get higher wages. Regardless of the business cycle, one quarter of the US economy is expanding. Industries benefiting from government spending will strive, even if the country may slip into a recession. Higher Taxes Big spending comes with bigger taxes. Government needs more tax revenue to pay for its ambitious agenda. • Higher tax rate on people earning $400,000 or more. New taxes on investment carry interest, translating into headwinds for hedge fund, private equity, and venture capital. • The 15% minimum corporate tax will affect multinational corporations which frequently use offshore tax haven. Potential Winner Unlike political elections, it is tricky to find a clear winner in the financial market. Comparing the performance of major US stock market indexes, the Dow has a year-to-date return of -7.18% as of November 11th, while S&P 500 and Russell 2000 yield -15% and -14.14%, respectively. Nasdaq 100 falls 25.10% and is the worst performer. Big Tech is laden with bad news these days, with missed earnings and widespread layoffs among them. As stock prices are beaten down, valuations become more reasonable. In my opinion, advanced technologies that align with government priorities would benefit in the next two years. Clean energy, artificial intelligence, biotechnology, space technology and electric vehicles are on the receiving end of major government funding. While I was bearish with the Nasdaq at 13,500, I think it could find price support at 10,500. However, impacts from the Midterms interact with business fundamentals, the ever-changing investor sentiments, and major global events. The next Fed meeting is only two weeks away. Let’s wait for the next rate decision, as it is the overarching factor that guides market direction right now. We can put CME Micro E-Mini Nasdaq 100 Futures ( CME_MINI:MNQ1! ) on the watch list today. MNQ has a notional value of $2 times the index. At 11,792, each contract is valued at $23,584. Opening a Long or Short position requires initial margin of $1,500. While the S&P 500 is trending down, certain sectors may outperform the broad market. CME recently launched E-mini S&P Biotechnology Select Industry Futures ( CME:SXT1! ) and E-mini PHLX Semiconductor Sector Futures ( CME:SOX1! ). They each offer more precise trading opportunities tailored to industries benefiting from increased government funding. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trade set-ups and express my market views. If you have futures in your trading portfolio, check out on CME Group data plans in TradingView that suit your trading needs www.tradingview.com
CME_MINI:MNQ1!Long
by JimHuangChicago
5
PUMP it then DUMP it for gold ?!With USD strength with a strong bearish trend currently intact, we have saw gold tried twice to break major resistance but it couldn't so I think a temporary retest of 1622 allowed bulls to push prices up and break Major resistance at 1685 before running into resistance at 1720 - 1730 then they will dump it to 1560-1580 Also don't forget Gold competes against the bond markets as a safe haven... a potential rate hike of 75 to 100 basis points by the might make the bond market a little more attractive to safe-haven buyers than the gold market would normally be
TVC:GOLDLong
by TradingWithMohamad
OP BUY SETUP - Bull Wave Is Coming!!OP's price just touched and bounced off from yellow support zone. Although there are many resistance areas on the top, but in the medium term, I am quite bullish with OP. Optimism’s main utility is to batch transactions on the Optimism network. Optimism allows users to enjoy lower gas fees on their transactions executed on the Optimism network through optimistic rollup technology. The project consists of the following major components working in conjunction: - Optimistic rollup: Optimism relies on the security of the Ethereum blockchain to process blocks that are created on the L2. - Ethereum Layer 2 scaling solution: Optimism is a Layer 2 scaling solution built on Ethereum which is EVM equivalent and has its own ecosystem of applications Entry: 0.70 ~ 0.71 I will use trailing stop-loss if price reached first target (R:R=1) ________________________ If this is your first time coming to my idea, thank you very much for taking the time to pay attention to it. My opinions are all subjective and personal. It might be right, or wrong, but there is one thing I can guarantee you will never go wrong - always set the SL for each entry before setting the TP for it. Don't forget to Follow, and comment your thoughts below, or simply a Boost button if you found it helpful. That encourages me a lot to share my ideas!
Long
by BuyDinhSellDay
DCA for beginnersI made a visual explanation investing mid/long-term with DCA and of how effective DCA is and how to do it based on a weekly chart, no matter how much money you got, you can adapt to your capital Understand that this is an example amongst many other and you are not obligated to follow this strategy, it's just to guide if you're new to DCA. It's not a financial advice. also, it's important to understand the market cycles, and know when it's a bullrun, a bear market and an accumulation & expansion phase
Education
by kaiju_crypto
VIX Feels Like a Smoldering Volcano 🌋 Post-2020 Parabolic MoveThe consolidation pattern in the $VIX goes back to June 2020 after the initial COVID flash-crash scenario. From June '21 to November '21, you started to see a bottoming formation turning into a new uptrend , subtle as might've been. The uptrend has chopped around in this rising channel since the end of 2021 up until the recent false breakdown during August 2022. This head fake has allowed the $VIX to retake the bottom of the channel and continue up and up after every headline the market fears. Despite the approach of overbought levels, the bear market rally on Wednesday, September 28 gave volatility room to run. It appears probable a consolidation pattern around 36-38 will level off the relative strength as of late, occurring for the month of October when the market could stage a short-term rally. Coincidentally, this will set up the $VIX right into the midterm elections... To be clear, sirens won't start popping off on $SPY $QQQ and $DIA until a decisive, sustained move over 36.79 occurs. If that happens, a move to 47.20 seems like a no-brainer. Notably, that is a test of the top of the rising channel , confirming 2 technical scenarios with the midterm elections as the catalyst for the next leg. Keep your head on a swivel and keep an eye on the volatility of $VIX $TLT and $DXY for directional signposts in the broader market. Also, it's important to remember Jerome Powell and other Fed officials, Russian tensions, Europe energy or monetary headlines, and CPI could all eliminate this hypothesis.
TVC:VIXLong
by zwburger
VIX Feels Like a Smoldering Volcano 🌋 Post-2020 Parabolic MoveThe consolidation pattern in the TVC:VIX VIX goes back to June 2020 after the initial COVID flash-crash scenario. From June '21 to November '21, you started to see a bottoming formation turning into a new uptrend , subtle as might've been. The uptrend has chopped around in this rising channel since the end of 2021 up until the recent false breakdown during August 2022. This head fake has allowed the TVC:VIX to retake the bottom of the channel and continue up and up after every headline the market fears. Despite the approach of overbought levels, the bear market rally on Wednesday, September 28 gave volatility room to run. It appears probable a consolidation pattern around 36-38 will level off the relative strength as of late, occurring for the month of October when the market could stage a short-term rally. Coincidentally, this will set up the TVC:VIX right into the #MidTerms... To be clear, sirens won't start popping off on AMEX:SPY , NASDAQ:QQQ , and AMEX:DIA until a decisive, sustained move over 36.79 occurs. If that happens, a move to 47.20 seems like a no-brainer. Notably, that is a test of the top of the rising channel , confirming 2 technical scenarios with the midterm elections as the catalyst for the next leg. Keep your head on a swivel and keep an eye on volatility of TVC:VIX , NASDAQ:TLT , and TVC:DXY for directional signposts in the broader market. Also, it's important to remember Jerome Powell and other Fed officials, Russian tensions, Europe energy or monetary headlines, and CPI could all eliminate this hypothesis.
TVC:VIXLong
by zwburger
1
The Good, The Bad and The Ugly - BTC to $430 000 (there's a catc The Good: $430k is in slight 🚀 The Bad: $7-$9k will come first ⚡ The Ugly: it'll take 4 years to reach the top, 3 years of which in a bear market. 🐻 Despite the high volume in the recent weeks BTC was unable to push through $25 200 or hold the $23 800 resistance that flipped support for a short while! This is very significant and paints a grim picture, especially when paired with the state the US economy and the high inflation. This price action is usually characteristic for the PS stage in a Wyckoff Accumulation, where institutional buyers accumulate the asset so that they have enough of it to sell through major resistance levels (and subsequently buy back at a discount). This in turn triggers a cascade effect, pushing weak hands, who in a state of a panic try to salvage whatever they can and sell everything they have left at a great loss. In the short term we should see a bonce back to $22 600-$22 800k before the final leg down. Bottom price is not guaranteed, but the bottom will almost certainly be at the end of November / beginning of December. To show the potential path I've used an inverted fractal from ADA that covers the accumulation period and the ascend to $3+. Never a financial advice, dyor.
by Rezakov
Market Impacts of the US Mid-term ElectionsCME: S&P 500 CME_MINI:ES1! ; NYMEX: WTI NYMEX:CL1! and Henry Hub NYMEX:NG1! ; COMEX: Copper COMEX:HG1! and Aluminum COMEX:ALI1! The 2020 U.S. presidential election put Democrats in control of the White House and both branches of the Congress. In the upcoming mid-term elections, if Democrats retain their majority, Joe Biden will become the most powerful U.S. president in the 21st century. Donald Trump, his predecessor, enjoyed a Republican-led Congress in the first two years. However, after Democrats took back the House in 2018, Mr. Trump found himself fighting with Speaker Nancy Pelosi daily, all the way to a presidential impeachment in 2020. President Obama faced a divided Congress in six of eight years. The only lasting impact of his presidency may be Obamacare, besides his own legacy as the first African American president in U.S. history. United We Act, Divided We Fight Looking back on the 90 years since Franklin D. Roosevelt first became president: • We had Party Government for 44 years. The term refers to where the president, the house and the senate are controlled by the same political party. • For 14 years, we had a Divided Government , where only one branch of the Congress aligned with the president. • The remaining 32 years were Opposing Government , where the president and the Congress came from opposing parties. A divided or an opposing government tends to spend too much time on political infight. It’s difficult to reach a consensus to do big things. Major bills usually got approved in a unified government, and their impact extends far beyond the four-year presidency. For proof, we only need to look at how government spends money. In 2022, Medicare is the biggest expense item in the $6 trillion federal budget. Medicare Act was introduced in 1965 under President Johnson and a Democrat-led Congress. More than half a century later, it now costs $1.44 trillion or 24% of government spending. Social Security is the second largest expense item. The program was enacted in 1935 by a Democrat-led Congress as part of President Roosevelt’s New Deal. Social Security costs $1.13 trillion in 2022, or 19% of federal budget. Biden Administration’s Achievements What did the Biden Administration accomplish? One may point out the embarrassing retreat from Afghanistan in 2021 and the runaway inflation in 2022. However, Mr. Biden has been very effective in pushing legislative agenda. In just 1-1/2 years, four major bills with a $4 trillion total budget have been signed into law. A month after Biden took office, Congress passed a $1.9 trillion American Rescue Act on March 11, 2021. Most Americans received a $1,400 check from the Treasury Department. Millions of small businesses got approved for much needed loans. Government bailout prevented the economy from going into recession in the depths of a pandemic, even though it might have paved the groundwork for hyperinflation we are experiencing now. On November 15, 2021, Congress passed a $1.2 trillion Infrastructure Investment and Jobs Act. Among the biggest items, $110 billion are allocated to upgrade the country’s roads and bridges, $66 billion to renovate passenger and freight railways, and $65 billion to revamp the electric grid. U.S. unemployment rate stays very low this year, thanks in part to the new jobs created from government funded programs. On August 9th, Biden signed into law the U.S. Chip and Science Act, which has a $280 billion price tag for ten years. Just a week later, He approved the $737 billion Inflation Reduction Act. Most economists agree that bill has little chance of reducing inflation. The real purpose is to fund climate programs. To be budget-neutral, high-income earners will see a tax hike. Investment carry interest will be taxed. And there is a 15% minimum corporate tax. Mid-term Outcomes and their Implications to Financial Market The 2022 mid-term elections consist of 36 senate races, 435 house races, and 36 gubernatorial elections. There are thousands more at state and local government levels. Depending on their political leanings, different polling agencies have very different mid-term predictions. Here, I would like to explore the impact of the mid-term elections on financial markets based on the three states of governing: • A one-party government • A divided government • A lame duck government One-Party Government The Democrats currently control the Presidency, the House of Representatives, and the Senate. A united government could do big things and spend big money. If Biden’s party win in the midterm, the Administration would continue its path to "Build Back Better ". The Winners: • The stock market: My chart shows correlation of market turning and passage of big bills. Government investment creates jobs and supports business expansion. If you expect Democrats to win, you could express this view by a bullish equity index trade. Suggested strategy: Long CME E-Mini S&P 500 Futures. • Base Metals: Massive infrastructure programs call for more use of industrial materials. This is Bullish for NYMEX Copper and Aluminum. • Climate programs will provide more subsidies to clean energy, electric car, and new investment to support an ambitious carbon reduction goal. The Losers: • Fossil energy: Traditional oil and gas industry would face more government restrictions. This is bad for stocks in the energy sector, but Bullish for NYMEX WTI crude oil and Henry Hub natural gas. Less domestic drilling means less energy supply. • High net-worth investors: Higher tax rate on people earning $400,000 or more. New taxes on investment carry interest. This will be bad for hedge funds, private equity, and venture capital funds. • The 15% minimum corporate tax will affect multinational corporations and high-tech companies which frequently use offshore tax haven. • While government spending may help pop up the S&P, the Tech-heavy NASDAQ 100 may be a loser with the higher corporate tax rates. I am concerned about the long-term ramifications of the new taxes on innovations. Government investment could not replace the role of venture capital. The former tends to be risk-adverse and the latter has more risk appetite to fund early-stage companies. They may find ten losers before running into a blockbuster. If you cut off the incentive by taxing the winner, venture capitalists will no longer fund the Apple or Google of tomorrow. Divided Government If Republican retakes either the House or the Senate, but not both, the Administration would face challenges mainly in government spending and taxes. New legislation may be stalled at a Republican-led House or Senate. I don’t see any clear winners or losers in this scenario. The Administration would turn its focus on implementing the bills already passed, such as the CHIP Act and the Inflation Reduction Act. Fewer new legislations are on the horizon. Lame Duck Government If Democrats lose control of both the House and the Senate, we may well expect a lame duck government in the next two years. A Republican-led Congress would launch attack on “Build Back Better” and roll back progressive policies enacted by the Democrats. The Winners: • Oil and gas. Domestic drilling will resume in full speed. • The rich. New taxes will be rolled back. The Losers: • Climate programs. Funding will be stripped out or watered down. • New energy and electric car. Subsidies will be reduced and restricted. Voters have short memory. What happened in 2020 and 2021 will be ancient history. What will happen in the next two months – the economy, jobs, inflation, gas price – will dominate voters’ mode when they come out to vote on November 8th. So, it’s fair to say it is still too early to predict which state of government would prevail in the next two years. Financial market is extremely volatile this year. Getting an information edge increases your odds of success. I suggest my readers subscribe to CME market data. Tradingview users already have access to delayed data. A Pro user could upgrade to real-time CME market data for only $4 a month, a huge discount at the time of high inflation. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME_MINI:ES1!Long
by JimHuangChicago
36
Upside for Gold as rate expectation cooled by recession riskSummary The surge in energy and agricultural commodities in the past 6 months had materialized into serious inflation even down to the consumer end across the globe. To cope with inflation, the Fed has begun to raise rate at an accelerating pace. The rise in the interest rate of the USD causes dysfunction of traditional risk haven such as Japanese Yen FX:USDJPY and Gold COMEX:GC1! . However, with more evidence that the US is very close to a recession, the Fed might need to tune down to a more cautious approach to balance between taming inflation and speeding up recession due to higher borrowing cost (and debt repayment) for business. The stabilization in rate hike might soften the already strong dollar, hence providing room for traditional risk haven assets to rebound and restore some of their risk haven property . With still ongoing global political uncertainty (see appendix for more detail), there might be further upside potential beyond rebound. One should pay extra attention to the collective transition of power globally which is happening at a similar time coincidentally. Technical and trade planning Just like most commodities, the dominant force driving gold downward is the strength of the USD. The US Dollar Index TVC:DXY had reached a new high at 107.786, before retracing back to 106.895 to close lower last Friday, creating a reverse hammer candle. While the uptrend of the dollar index is still effective, however the bearish pattern hinted the peak might have reached (or at least the upside momentum is reducing) . Similar pattern in reverse was seen in many commodities including gold, which means opportunity for rebound trade. Note that gold currently is trading below most moving averages which means the downtrend is still in power. 20 days moving average trading below the 50 days, and both pointing downward double confirm the bearish view. In rebound trade it is very important to keep your cut loss and profit taking tight. One should also adopt strategies that allow more tolerance for error (e.g. longing call option with >30-60 days to expiration). Here are some technical levels trader of gold should be aware of: Downside support (to cut loss if dropped through) 1676.7: 2021-Aug hammer candle bottom 1721.8: 2021-Sep downside retest bottom Upside resistance (to take profit if fail to go further) 1785: May-16 bottom (broke on Jul-5) 1833: 250 days moving average 1878.6: Jul-3 rebound peak Appendix: Political events to keep an eye on Asia The former prime minister of Japan, Shinzo Abe was assassinated last Friday. Abe was seen as the de facto power of Japan. He initiated and was involved in lots of Japan economic policy and China-Japan relation issues. Close ties with global leaders, he was one of the early promoters of threat emerging from growing China, which later led to global boycott of China. He also showed his support to Taiwan as he saw the country as the first line of defense of Japan from China. One of his unaccomplished goals was to revise the country’s pacifist constitution to formalize the Japanese self-defense force as army, and broaden its military agenda outside of homeland defense, to be involved in regional security issues, such as Taiwan. The death of Shinzo Abe might help the constitutional revision to gain more supportive votes, which will worsen China-Japan existing tension. The 20th National Congress of the Chinese Communist Party will take place in November this year. One of the major topics is whether the current Chinese leader Xi Jinping will be re-elected for the next 5-years term. With lots of policy missteps that have caused material harm to the Chinese economy and financial stability, there are growing voices within the party that they might want a leader who can focus on reviving the Chinese economy instead of political ideals. At the same time, Xi is neutralizing the opposition force by revealing their evidence of misconduct and corruption (same strategy 10 years ago). The upcoming continuation or transition of power in China is going to be a very tricky one. Europe No end in sight for Russian invasion toward Ukraine, albeit increasing military support by the western powers. Inflation continues to make record highs in Europe with latest June CPI figures standing at 8.6%, energy talk with Russia is going to be very difficult especially for natural gas which is virtually impossible to get supply from other continents. The prime minister of the UK, Boris Johnson had resigned last week amid back-to-back scandals , with the Chris Pincher case became the last straw that broke the camel's back. The United States Recession risk, high gasoline price, baby formula shortage, the series of unfortunate events had taken a toll on the president Joe Biden approval rate, which dropped to just 30% in the new national poll. The negative sentiment toward democrats is likely to make the republicans take control of both the senate and the house. The democrats probably can take advantage of the recent Supreme Court’s decision of overturning Roe v. Wade, however the edge might not be enough to change much according to the latest forecast.
COMEX:GC1!Long
by geoffreyip523