Trump bear market takes a break. Traders facing a new reality?

Trump bear market takes a break. Traders facing a new reality?

Oil, high yield investments continue to take a hit as Election 2016 approaches. But for stocks and bonds, is the selling over? Or is the worst yet to come?

Trump as the Destructor. Image by the author, based on screen capture of YouTube video trailer for the original "Ghostbusters." (© 1984, Columbia Pictures. Fair use of image for satirical purposes.)

WASHINGTON, November 4, 2016 – We’ve noted numerous times in this column that the stock market will speak to you if only you will listen. Up until a few weeks ago, market averages had factored in a decisive win for Hillary Clinton, which for traders and investors alike meant more of the same environment we’ve experienced during the past eight years of Obamanation.

Satirica Photoshopped image on an anonymous commenter's Facebook entry. Original image or images unknown.
Satirical Photoshopped image appearing on an anonymous commenter’s Facebook entry. Original image or images unknown.

While some may or may not have been comfortable with that, that notion was long a certain certainty, which also factored in a relatively benign Federal Reserve, low crude oil prices, dampened interest in precious metals, and ample rewards for holding high yield stocks and likely big capital gains generators like stocks in the high-tech and/or Internet sectors. Plus, more free money for the rich, courtesy of an accommodative Federal Reserve.

But as they watched the rich get rich and the poor and even the middle-class get poorer, the increasingly impoverished natives still dwelling in America’s forgotten Flyover Country got angrier and angrier, and God created Donald Trump to voice that anger and frustration. Until recently, the bigwigs ignored this situation and the media suppressed it with all its might. Who do those yahoos think they are, anyway?

Cone of Silence in "Get Smart" episode "KAOS in CONTROL." Via YouTube video screen capture.
Cone of Silence in “Get Smart” episode “KAOS in CONTROL.” Via YouTube video screen capture.

But for better or worse, Trump broke through this informational Cone of Silence Hillary Clinton broke down beneath the weight of relentless Wikileaks that tore through her carefully scripted but phony veneer. And finally, a small army of long-silent but upright individuals in the FBI and the intelligence communities finally rose up and caused the FBI’s questionably terminated investigation of Hillary’s Emailgate shenanigans. (They may have even been the source of Wikileaks’ leaks.) And suddenly, at least to the extent the MSM will report it, the previously scripted narrative for Campaign 2016 was suddenly derailed.

That’s what’s been causing the S&P 500’s bone-crushing, 8 consecutive day decline, which, at least as of 2:30 p.m. EDT on Friday, November 4, 2016, has decided to take a brief break for whatever reasoning. Perhaps Wall Street’s pro-Clinton mourners are at the “bargaining stage” of grief.

(UPDATING: As we near the close of Friday trading at 3:50 p.m. EDT, all averages are heading back into negative territory by roughly 0.2 percent.)

Anyone who tells you how Tuesday’s election results will turn out is most likely an idiot. That’s why the Maven won’t bother to opine this year. After all, he predicted in 2012 that that decent Republican businessman who saved the Salt Lake City Olympics, Mitt Romney, would take the Presidential brass ring, courtesy of a nation that was already sick of Barack Obama’s sinister “fundamental transformation.”

Wrong answer. The fundamentals were being transformed already.

Election 2016 is even more confusing, given all the media flapdoodle as well as the MSM’s absolute refusal to tell the election story straight. Instead, they created a false narrative that  demonized one candidate while elevating the other to sainthood. Anyone interested in the truth has had to pick his or her way through the morass of reliable and unreliable web-based news sources and amateur opiners who may or may not be telling the truth themselves. The MSM, except perhaps for elements at Fox, will never be believed again.

But no matter what the scribbling, blathering and gasbagging punditocracy may say or write, absolutely no one knows what’s going to happen Tuesday. If they say they do, don’t bother listening. It’s a waste of time.

Whatever the case, some time over the last two weeks, Wall Streeters lost their absolute confidence that a Clinton win is already a slam dunk, even thought financial media trumpeted this outcome as a given. Often privy to likely illegal inside or advance information, Wall Street pros, including funds, hedge funds and institutional traders don’t trade such information lightly unless they know it is true. They’re in there to win, and they’re properly amoral about it.

Something like 97 percent of these people have contributed mightily to Her Hillariness over the past year. (Goldman Sachs even forbade its higher-ups from donating to Donald Trump at all.) But money is money and, whether it’s the Chinese torture of daily Wikileaks or privileged glimpses into internal polling, the hard selling of nearly everything that even looked like a stock over the past two weeks or so is a clear indication that the political mood of the Wall Street investment community has changed.

Whether the selling is indeed convincing evidence that Trump is highly likely to win, or if it’s merely an indication of a general fear that this might happen; or, even worse, if it’s a fear that a tainted Hillary Clinton win will be followed by her pre-inauguration indictment for high crimes and misdemeanors, professionals have been choosing to bail out of stocks en masse over the past couple of weeks. They’ve apparently decided this course of action was far better than hanging around the trading floor and getting slaughtered in what some gloomsters think could be the Greatest Wall Street Crash of All Time.

Even the absurdly pro-Hillary, anti-Trump writers at CNBC online seem to be coming around to at least the possibility of a Trump victory. The mood on that site began to shift about 3 days ago on CNBC’s site. Today, we got this story, entitled:

Fund investors spent the last week pricing in a Trump victory

To wit:

“Money flowed into government bonds and European stocks, and out of high-yield bonds and U.S. stocks, as the market positioned the last week for the possibility that Donald Trump might pull off a win in Tuesday’s presidential election.

“There were multiple signs that fund investors were making adjustments — either pricing in or hedging against a Trump win — as the Republican sharply narrowed the gap with Democratic nominee Hillary Clinton. The Real Clear Politics polling average Friday gave Clinton just a 1.7-point lead over Trump, down from 7.1 points on October 18.

“Government bonds saw their first inflows in 17 weeks, high-yield redemptions hit their highest level since January and gold took in cash as well, according to Bank of America Merrill Lynch.

“All of the trades are consistent with what many on Wall Street have been looking for should Trump prevail: At least a short-term sell-off in the stock market, inflation pressures pushing up bond yields and a general climate of uncertainty that will benefit safe haven plays like Treasurys and precious metals.”

We will have some kind of political mess on our hands next week. You can take that to the bank. But what we may not know, even Wednesday morning, November 9, is what the hell really happened. Shades of the year 2000.

Today’s up move in the markets is more than likely a reaction to the market’s currently badly oversold condition, as per this chart of the McClellan Oscillator below, courtesy Stockcharts.com:

The McClellan Oscillator as of COB Thursday, November 3, 2016. (Chart via splash page of Stockcharts.com)
The McClellan Oscillator as of COB Thursday, November 3, 2016. (Chart via splash page of Stockcharts.com)

When this technical indicator hits extreme oversold or extreme overbought conditions, markets usually react in the other direction, which is what we’re getting Friday. But if Wall Street’s worst nightmares haven’t already been priced into the markets over the last two weeks, and if one of those nightmares comes true next Tuesday after the polls close (except in Philadelphia, where they never close), things could get very, very ugly next week.

Trading diary

We’ll have little to say here until sometime next week after the smoke clears. Or remains in the building to smother us all. We’ve taken both profits and losses over the last few days, but reluctantly so. Yet with so much uncertainty ahead, including the election, the stymied Brexit, the wobbly price of oil and the indecisive Fed, we’re up to about 30 percent cash in our largest account, and we’ll stay there until the smoke clears, however long that may be.

Have a great weekend, before the Wild Rumpus begins.

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