Insights

Politics Plays Wall Street, Market Gets Hammered

The sum result of the election in Massachusetts on Tuesday, proposed banking regulations on Thursday and talk of Fed Chairman Ben Bernanke’s reappointment vote on Friday comes to 552 points – straight down.  The super traders from Goldman Sachs Group, Inc. (NYSE: GS) posted earnings on Thursday morning of $8.20 a share, a full $3.00 or 58% above expectations.  The net result was the stock is down 8.15% or $13.67 in two days, or ever since a fat chunk of kryptonite slammed into Wall Street with a note attached…

‘New trading limits, love always, Obama.’

The Dow Jones Industrial Average lost 216.90 points (-2.08%, 10,172.98) today, lost 552.45 in the last three days (5.2%) and is down 436.67 (-4.11%) for the week.  The S&P 500 was down 24.74 points on the day (-2.22%, 1,091.74), 58.49 points for three day period (-5.08%) and 44.29 points for the week (-3.90%).  The Nasdaq 100 fared the worst today and dropped 55.75 points (-3.01%, 1,794.82), 100.66 points (-5.31%) for the three day period and 69.70 points on the week (-3.74%)

To say this was all Obama’s fault would be an exaggeration, but not by much.  Maybe it is Scott Brown’s fault for winning the election in Massachusetts as the shock waves from a Republican in Ted Kennedy’s old seat is what is causing this market to fall.  ‘Cause and Effect’ defines the political whirlwind from Tuesday’s election as incumbent Democrats as far away as San Francisco were confronted with evidence that the voting public is pretty pissed off about a few things and itching to take it out on someone.  One resulting ‘effect’ was Obama’s new proposed trading restrictions and the second hit came today as politicians came out saying they would not vote to reappoint Bernanke to the Chair of the Fed.  Are these politicians, with an election less than ten months away, looking for a scapegoat to serve up as a sacrifice to the voting masses?

Bernanke is associated with Wall Street by most, even though he comes not from the polished halls of Goldman Sachs but the hallowed halls of academia, namely Princeton University.  Ben invented a whole new way to stabilize the market for the Fed with his quantitative easing program.  Some have taken exception to this as the amount of toxic debt bought, as a result of this program, and on the Fed’s off-government balance sheet is not only a secret, but possibly unconstitutional.  The way I see it, Chairman Bernanke is the leading expert on the Great Depression and did some fast and creative thinking on his feet so that depression he studied is still the only depression we have had.  Not allowing Ben to stay in control of the programs he has going at the Fed may not be a disaster, but it definitely should not be decided upon because some politician needs a sacrifice to the voting gods for their own personal job security.

I wrote yesterday that the DJIA broke down through its uptrend line effective since December 17th.  Where the Dow closed yesterday was right on top of two supports.  The 50 day exponential moving average is at 10,394, yesterday’s close was at 10,389 and the last remaining uptrend line for this rally was right at 10,390.  You can see this as the point where the ‘curvy’ blue line and the lower straight red line are on the following chart;

Breaking Support

The announcements today of politicians that are not going to vote for Bernanke caused the market to fall through the support that caught it yesterday, and as it was a Friday, the selling accelerated into the end of the day.  Traders do not like holding long positions into a weekend when the market is weak as that gives the world two days to come out with bad news that could cause these holdings to gap down on Monday morning.  As the market weakness floated into the afternoon session, you could see the orderly exiting of positions as traders lightened the boat and the decline accelerated.  A market that closes on, or very near its low is indicating weakness as it shows that what stopped it going down was not a let up in the selling, but the clock on the wall.  There may be more to sell Monday.

The DJIA has support at 10,090 and then at 9,830.  If the Dow breaks these, the next support is at its 200 day exponential moving average at 9,727.

As the whole market was being sold, New York spot gold dropped 80 cents to $1,092.30 an ounce.  On a $1,000+ price, this is meaningless.  Some of the few stocks up today on my trading screen were gold mining companies.  I think we are seeing a rotation into gold out of other stocks in a ‘flight to safety.’  Charts show support for gold at about $1,060.

Oil now looks headed to $50 as opposed to the $100 level traders were eyeing just a week ago.  Nymex crude dropped $2.05 a barrel to $74.02 (-2.71%, 5:05 p.m.)

Write your Senator and tell them to vote for Bernanke – might just help you get some money back.

Have a great weekend.