Tuesday, 6 November 2012

Stocks to rally on US election result?

Will stocks rally on the US election result? Looks to me that the markets are setting up for such an outcome. I may well have egg on face in 12 hours or less, wouldn't be the first time, wouldn't be the last. Just presenting the evidence as I see it. Charts include all sessions trade.

The German DAX is rallying inside a bull flag.

The  Aussie ASX 200 is showing a steeper bull flag, but is well above support from both the up trend line and the recent break out level. Note also this week's rally from the 40 day moving average.

The US S&P 500 looks to be rallying from trend channel support, though for full confidence in the bullish case, needs to clear resistance at the nearby overhead trend line and last week's high.

AUD/USD bullish moving average crosses on weekly, daily, and hourly charts

It is foolish to bet against the trend, especially when the trend (up - see charts below) is supported by the news (RBA surprising the pundits by holding rates).

The weekly, daily, and hourly charts of the AUD/USD all show recent bullish moving average crosses. That is, short term moving averages crossed upwards through medium term moving averages. I don't often feature moving averages in the charts on this site, as they clutter the view, obscuring the trend lines that are usually the focus of my posts. But moving averages feature very heavily in my trading systems, and today are illustrative. I use the 18 and 40 period moving averages. The exact parameters don't matter, similar crosses and behaviour would be visible with other popular pairs.

Weekly, infant up trend. Not very strong at this point.

Daily. Up trend has grown legs today but still in its infancy, not very strong.

Hourly, note the retest and strong rally from the 18 in the very hour of the RBA announcement

EUR/USD testing trend channel support

Anyone who saw my weekend post on the EUR/USD knows it is in a medium to long term down trend, and has recently broken through trend line support. The chart below illustrates for me the "last chance" trend line support for this market, taking the form of a bullish flag. Below that, look out! But the market could bounce. There's two sides to a coin, and a trend line.