Prospects of a Pro-Business Administration and Effective Rate Cuts Fueled the Rally
Indexes, Stocks and Crypto broke above resistance lines. Historical charts for IWM and TSLA.
The market surged following the election results, buoyed by the prospect of deregulation and tax cuts from the new government; in addition, the FED cut rates, a fact that the market digested as bullish by the end of the week.
Some traders or investors have asked in social media why the market is taking as a bullish sign the result of the presidential elections, there are two factors to consider for the week that just ended: The election injected a bullish reaction considering previous facts from the upcoming administration, and also the rate cuts.
1.Presidential election:
In a descriptive way, separated from any political affiliation and the utmost respect for any candidate preference, people navigating the market can observe benefits experienced by sector under the previous presidency of the current president elect, based on the administration’s pro-business policies:
1. Energy: Particularly oil and gas, benefited from deregulation and policies aimed at increasing domestic production.
2. Finance: Banking and financial services enjoyed reduced regulations, which bolstered profits and encouraged lending.
3. Industrials: Manufacturing and industrial sectors received boosts from tax cuts and increased infrastructure spending proposals.
4. Defense: Defense contractors saw increased budgets and contracts due to a focus on military spending.
5. Technology: The tech sector benefited from tax reforms and favorable regulations, although it faced scrutiny over data privacy issues.
Zooming in to the the energy sector, there were specific policies that benefited it in the previous term of the new president elect:
1. Deregulation: The administration rolled back numerous regulations that impacted energy production, making it easier for companies to explore and extract fossil fuels.
2. Tax Reform: The Tax Cuts and Jobs Act included provisions that benefited energy companies, such as reduced corporate tax rates.
3. Opening Federal Lands: Policies were implemented to open up federal lands for oil and gas drilling, including the Arctic National Wildlife Refuge (ANWR).
4. Support for Coal: The administration promoted coal by attempting to rescind regulations on emissions and supporting coal-fired power plants.
5. Withdrawal from the Paris Agreement: This move signaled support for fossil fuels over renewable energy commitments, thereby benefiting traditional energy sources like oil, coal, and natural gas.
6. Export Policies: Initiatives were set in place to allow increased exports of oil and liquefied natural gas (LNG), expanding U.S. energy markets.
2.Rate Cuts
The FED cut 25 bp last Thursday, rate cuts are considered bullish for the stock market for several reasons:
1. Lower Borrowing Costs: Lower interest rates reduce the cost of borrowing for businesses and consumers, encouraging spending and investment.
2. Increased Corporate Profits: Cheaper loans can boost business profitability, as companies pay less in interest, which can lead to higher stock prices.
3. Consumer Spending: Lower rates typically lead to cheaper mortgages and loans, increasing disposable income and driving consumer spending, which fuels economic growth.
4. Investor Shifts: With lower returns on fixed-income investments like bonds, investors may shift their capital to stocks in search of higher returns, increasing stock demand.
5. Economic Stimulus: Rate cuts are often implemented during economic slowdowns to stimulate growth. The anticipation of a healthier economy can boost investor confidence and lead to stock market rallies.
The last point is crucial, especially considering the current economic climate. Rate cuts can have significantly different impacts on the stock market during recessionary and non-recessionary periods.
The macro-indicators edition below provides educational content about how they work, and what are the current red flags in some of them:
Recap from previous editions:
The most significant reversals observed during the last three weeks were anticipated in this publication:
Tesla (bullish)
Google (bullish)
Bitcoin (bullish)
GDX (bearish)
Silver (bearish)
Every chart and setup analyzed includes a specific level of confirmation or invalidation that worked very well last week to anticipate by Tuesday midday the Wednesday’s rally. That level (and others) is shared on Fridays for the following week, so you can take some measurements and have references of risk and potential moves per security before the after hours session closes at 8PM New York time.
Market conditions
There are times when the entire market exhibits similar characteristics. For instance, we might see oversold RSI readings across multiple assets, bullish hammer candlesticks, bearish Stochastic crossovers, or warning signals from Bollinger Bands. Let's explore the current market condition and how long it can last.
As a final reference before some invitational notes: The shooting stars presented last week have not been invalidated, every timeframe takes its time.
Every Saturday, there is a deep dive into the technical analysis of key securities: SPX, NDX, DJI, IWM, TLT, GOOG, AAPL, TSLA, META, NVDA, MSFT, AMZN, GDX, SILVER, NAT GAS, DAX, and Bitcoin. A break down of their setups is analyzed based on the technical indicators that read better the price action, and identify potential reversals.
On Fridays, a detailed base of support and resistance levels for the securities mentioned above, and the S&P 500 futures (ES=F), Nasdaq 100 futures (NQ=F), and Ethereum as well.
The Wednesday edition offers a comprehensive fundamental analysis of these and other key companies, including NFLX, DIS, DELL, PYPL, SQ, WMT, TGT, and more. This growing library of in-depth analyses provides valuable insights for your investment decisions.
Subscribe now to unlock exclusive content below and take your trading to the next level, something special is here for you today: