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November 4, 2008

Obama Nation

Equities served up the expected rally today and are pressing higher despite a slew of overbought readings. This strength is very good news for our rally scenario. At this point, I'm following a near-term trend line with the expectation that a surprise rally will take us firmly through overhead resistance. I say "surprise" because few traders expect a big move in the face of oscillators that are pressing overbought readings not seen in weeks. However, periods of panic selling typically see panic buying on the flip side as traders fear they've missed buying the bottom.

index chart

We may hit that trend line once again before the breakout, but the move higher should be quite strong... powerful enough to scare any remaining hesitant buyers into the market just before we reverse sharply to backtest 1020. This outlook may sound cynical, but cynicism is usually well-rewarded in the stock market. Our countertrend rally is going to be loaded with choppy action, as I've stated.

Commodities popped nicely in response to a weakening dollar, and oil just missed the $8 up day I predicted in the weekend post. Crude was up $7 and change at its high point. I suspect the dollar index will work its way back to 80 as this mid-term rally progresses, and this drop should further fuel the rally in commodities.

dollar chart

As for the elections, they are really a non-event as far as the markets are concerned at this point. An Obama victory is already baked into the cake, as is a significant loss of seats by Republicans in Congress. Barring a divisive result such as an electoral tie in the Presidential race, markets should keep chugging to their own tune. The results should be fun to watch, however. I suspect we'll hear a curious news item about Ron Paul receiving an unprecedented number of write-in votes. I know of at least four, including myself!


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