Re: 2016 US Presidential Election
Yes, it's pretty obvious, isn't it? The markets, like the polls were betting on / predicting a Clinton win. Therefore with Trump winning, not only do shorts have to be covered but the market responds to Trumps agenda, pushing it the same way as short covering. Part of that agenda is infrastructure, hence the improvement in many metals stocks, at least.
but any momentum in metals due to Trump will probably be overtaken by supply and demand pretty soon. For instance, a lot of copper's recent surge is due to low warehouse stocks.
My comments only applied to a very short time frame so political agendas, supply and demand and intrinsic values (whatever they
really are) etc. don’t have sufficient time to have any influence on market behaviour. In the medium or longer term people go back to the facts and figures and everything reverts to “business as usual”.
Not surprisingly, it’s very hard for most people to get their head around the idea that for a few days either side of events such as the US Presidential Election both fundamental and technical analysis mean virtually zilch, but that is what actually happens.
During that short period behavioural traits (emotions?) over-ride pragmatic (what many call rational) considerations. If you specify the alternative scenarios (i.e. either Clinton wins or Trump wins) and then profile the likely behaviours of the market participants for each of them,
and ignore everything else, and trade accordingly (but don’t forget your “stops” JIC), you detach yourself from getting influenced incorrectly by all the talk that carries absolutely no weight.
This is a repeatable phenomenon – markets go defensive because of uncertainty ahead of an event and generally then quickly accept the decision, either way, and unravel those defensive positions in the aftermath. The disclaimer is that if uncertainty persists, such as a “hung” result or some other event gets superimposed or the problem turns out to be worse than anticipated (e.g. Greece), then all bets are off.
Interestingly, in this particular US event the end result was always likely to be the same - just via slightly different routes.
If Clinton wins, as even I expected, the stock markets would have moved up without the initial free fall we saw on Wednesday. When Trump started polling much better than expected (whoopee!), predictably fear took over because people had been conditioned to fear the ramifications of him winning, and the markets tumbled initially. Also of interest is the fact that our ASX200 often drops between 200 and 300 points in those situations, as it did on Wednesday, before buyers recognise the opportunity and jump in to reverse the direction. So once it’s obvious what’s happening you can often get 150 – 200 points going short. Then it's "long" once the reversal is obvious.
Traders probably quickly realised that if the media & “experts” got the result so wrong then maybe they also got the ramifications of a Trump victory wrong too. All of a sudden people recognised the predictable buying opportunity and after only a few hours the market was rocketing up again. Try and rationalise that with TA or FA!
