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The Stock Market Hates the Donald. The Stock Market Loves the Donald.


The stock market is a peculiar place. Like a ship of reason sucked into the Bermuda Triangle, it rewards one for being right for the wrong reason.

Just because things tend to luckily work a certain way at times doesn't disprove what is conceptually correct when the exception plays out.

Here's what one big investment house thought would happen with a Trump victory and a Republican sweep:

A flight to quality move into Treasuries driving yields significantly lower.
The dollar would weaken significantly.
Stocks would fall by 3 to 5% and continue to fall throughout the rest of the year.

Prior to the election when the Access Hollywood video caught Trump's ‘locker room banter' the market rallied thinking Hillary's win was a fait accompli.
Then when FBI Director Comey ‘reopened' the investigation into Hilary's emails, stocks tanked.

Then just two days before the election when Comey ‘exonerated' Hilary, the market soared.

Clearly, the market was betting on and hoping for a Clinton win.

And so on election night when it became more and more likely Trump would win, the DJIA tumbled — ultimately by 800 points.

Yet shortly after the market opened on November 9, the major indices rebounded and turned green with authority.

The stock market hates the Donald.

The stock market loves the Donald.

To say the market is a peculiar place is an understatement.

Presently, it is a peculiar time in a peculiar place.

I can't recall when I've ever seen such a disparity in sentiment between those looking for a melt-up to 2500 SPX and those looking for a dramatic plunge.

I can see how those simply looking at the price action extrapolate a major extension higher after 18 months on the side.

However, peeling back the price onion to look at the internals show a picture fraught with risk.

And, as night follows day, price follows internals, albeit the precise timing of which is not precise.

Last week we mentioned that the was the SPX was registering the most severe negative divergences since the 2000 top.

Additionally last week is the only the second time in the last 60 years where the NY Summation Index was negative with the market at new highs. The prior instance was 1999-2000.

2016 has been a record machine.

The first quarter was the greatest volatility in 78 years.

The third quarter was the narrowest volatility in history.

Would it surprise anyone to see a give back to top things off in Q4?

A most peculiar time.

Then we get the 4th quarter: a surprise Trump win with the consensus being that should the unthinkable happen, the market would plunge and gold would soar.

They were right—for a few hours.

If you think what has happened in the markets is not peculiar, you haven't been paying attention.

In hindsight, as usual, the pundits' explanations are all too superfluously plausible.

My own hunch is someone(s) very big got caught long and wrong and was able to orchestrate an emotional rescue which got out of hand –m a squeeze turned into a stampede.

The Trump Bungee may go down in the annals of market history as the Mother of Buy the Dips.

Especially, if a real mel-tup should play out from here versus this squeeze to a nominal new high before a dive — once again.

The Bipolar Trump Bump will certainly go down in  history books as exemplifying how psychology dominates the tape.

It all goes to show why scientists can't build programs to predict the behavior of the market—just as the algo's can only react and not use critical thinking and intuition.

Scientists can't model the market. They may be able to create algorithms that can capitalize successfully in the short term, but they can't predict the long-term behavior.

The market is a probability beast. There are outcomes that are likely to happen, but anything CAN happen. And, this is often based upon how the big money and the big interests are positioned. In other words, if too many players are on one side of the ship, the ship will list irregardless of the underlying macro.

The difference between the idea of natural law as applied to the markets and other scientific realms is that in the markets timing is everything.

In the markets, past is prologue, but market participants expectations play into the dynamics of outcomes in the near term. Objective realities in the markets are tectonic.

In other words, I believe there is an underlying natural order in the markets, but that reality  is affected by what participants think about it at any given time.

The market hated the Donald. Oh, the market loves the Donald.

Said another way, the market is a tug of war between the great Spiritus Mondi, our collective thinking, and the natural progression of cycles and time and price harmonics as propounded by the legendary W.D. Gann.

From my perspective, this is the double helix of the tape… the major and the minor chord that wrap around each other creating the music of the market.

In essence, what we think about reality affects reality itself. And that reality in turn affects our thinking once again.

So, as regular members have heard me say often, speculation is observation pure and experiential. Thinking isn't necessary and often just gets us into trouble.

Conclusion. The bottom line is explanations are relieving but really only serve as confirmation bias.

Markets are in a constant state of divergence from reality—meaning prices are always wrong.

The market is always right…because price is the final arbiter, but in reality prices are always wrong…by definition prices change rapidly from day to day and hour to hour and have little to do with reflecting value in a company.

The value in a company obviously doesn't change in tandem with the velocity of its share price.

Value is always overdone on both sides of the spectrum.

The conundrum of trading is that markets are in a constant state of divergence from reality. So by definition, again, prices are always wrong. Sometimes the divergence is small, sometimes large driven by positive or negative feedback loops as the case may be. These large divergences are what we as traders want to identify because that is where the money is. The stronger the theme the more ripe an item is for a strong feedback loop to form where perceptions directly boost so-called fundamentals. These are the scenarios where a stock or a sector or the market at large will go vertical or waterfall.

Identifying when these positive and negative feed-back loops may end entails the interpretation of cycles and the relationship of time and price. This is where the most money can be made in the shortest period of time. Where time and price come together. This is where time turns trend.

“A few years ago even scientific men, not alone the public, would have laughed at such a thing and refused to believe it. But mathematical science, which is the only real science that the entire civilized world has agreed upon, furnishes unmistakable proof of history repeating itself and shows that the cycle theory, or harmonic analysis, is the only thing that we can rely upon to ascertain the future…

In making my calculations on the stock market, or any future event, I get the past history and find out what cycle we are in and then predict the curve for the future, which is a repetition of past market  movements. The great law of vibration is based on like producing like.”
-W.D. Gann

Strategy. To recap from last week's article Reagan Rally Analogue, on the big 100 year cycle, on November 20th 1916, the DJIA topped at 110, by the end of the year it was trading at 95.

By the end of 1917 it was trading at 67.

On November 24, 1972, the DJIA reached 1025 the highest point of the decade.

On December 6, 1974 the DJIA set a 12 year low and bear market low and bottom for decades.

Interestingly the 1974 price low on the SPX was 62 which is straight across and opposite December 6/7 for a time/price square-out. That square out defined the bear market low that year.

Interestingly 62 is on the same vector as 666 (the low from 2009) and so aligns with  December 6/7 as well.

So 666 and 62 vector December 6/7th and are 90 degrees square March 6th, the date of the low in 2009.

So there you have it, a relationship/vibration between the 1974 low and the 2009 low and the current time and price.

You can't make this stuff up.

Given that the first week of December is 2000 weeks from the initial low in October 1974 (December was a marginal undercut), I can't help but wonder if a square-out on multiple levels in league with a 200 plus point spike in the SPX futures from the election night low in tandem with record extreme divergences in breadth is defining a significant high if not a bull market top.

Additionally, last month we noted that from the major 1932 bear market low to the 1974 bear market low is 42 years.

Another 42 years ties to 2016.

On the Square of 9 Wheel, 42 is square November 21st.

As flagged above, November 21st was the high on the 100 year cycle in 1916 as well as the primary low of the last bear market in 2008.

Remarkably, the 40 low on the DJIA at the early July 1932 low was also a 90 degrees square-out as 40 is 90 degrees from early July.

I suppose the market could always accelerate from this juncture, but that seems the short risk straw.

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