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No matter who you were rooting for I think we all lost in what had to be the nastiest campaign ever waged (until next year).

The Democrats turned 31 house seats and should end up with a 234 to 201 edge, more than a full reversal of what was a 232 to 203 Republican advantage.

You can tell Bill Clinton knew he had the House in the bag on Monday night and, with Hillary's 67% victory, nothing can be scarier for the Republicans than a re-energized Clinton family.

As I predicted yesterday, Virginia and Montana remain too close to call with the Senate equally divided at 49 seats each, but Virginia looks like it will go to Democrat Webb despite Allan's best efforts to dissuade Webb's voters.

Allen's staff certainly did everything they could too!

Even if the Republicans hold the Senate, they will have lost 4 seats and a 55 to 45 majority will slip to 51 to 49 at best. Aside from a close race in Missouri, the 3 other seats the Democrats gained so far were routes, Rick Santorum was thrown out of a job he held for 12 years with just 41% of the vote.

Clearly what saved the Republicans was the fact that 2/3 of the Senators were not up for re-election! Strategists must already realize that 2 more years of same-old-same-old will likely lead to full Democratic control in '08.

In Connecticut, where Joe Lieberman squared off against another Democrat, even party divisions didn't help the Republicans as Schlesinger got just 10% of the total vote.

There is an interesting poll in the WSJ where they asked "Did the Democrats win or did the Republicans lose?" 78% of the voters felt their party had thrown the election out the window!

Most polls say it was all about the war and it will be interesting to see if we stay the course for 2 more years.

6 states passed minimum wage increases but it looks like Prop 87 lost in California. A stem cell research bill passed in Missouri.

Most worrisome for the Republicans was the loss of 8 governors' seats (as it shows the will of the whole state). Of the 22 governorships they held, 6 were not up for election! Arnold was given a sequel by a huge majority, but is certainly not going to be invited to many hard-core conservative functions.

Bush has a message for the voters.

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Japan woke up on the wrong side of bed with the Nikkei dropping 177 points, pulling back to its 50 DMA, but now looking scary. All of Asia was off close to a point as dollar weakness made exporters (other than Toyota) very nervous.

Europe is trading down half a point so far but could get worse if the U.S. gives them topspin with a bad open.

Our futures are trading down as the markets were ready for a House-change, but the threat of a Senate change as well is just too unsettling for investors. The energy sector may want to celebrate the Prop 87 victory, but they may be looking at a national version in the near future if Speaker Pelosi has her way.

That's right boys, from now on, every time Bush speaks to Congress he will have Nancy Pelosi literally looking over his shoulder.

In general, let's look to see if we hold Monday's gains, anything better than that will be a nice surprise.

For the Dow, that will mean holding the critical 12,100 mark. The S&P has a long way to go before testing 1,370 and is in real trouble if it breaks below there.

The NYSE will be our directional indicator with a 35-point cushion above 8,800 but the poor Nasdaq will almost certainly fall below the 2,375 line it has spent the entire month of October trying to cross! Let's see if 2,350 holds there.

The SOX have 50 DMA support at around yesterday's open of 455, while the transports are the most likely sector to take this election well above the 2,600 level.

Oil could go either way today but showed real weakness at the $60 level of late as the rapidly falling 50 DMA races down towards it. My downside target remains $57.14, but first we have to get a close back below $58.56.

Expect desperate pre-inventory pumping this morning, and any kind of drawdown will be seized upon by traders as possibly the last chance to regain momentum before Democratic rule sets in next week.

Gold will give us an idea of the global opinion of Democratic control, but Bush is so reviled on our planet that I think this will ease pressure on the dollar in the not-too-long term.

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This will be a very tough trading day as many industries run for cover as Congressional oversight committees change hands.

There is a lot of pent-up animosity as Republicans have marginalized the democratic minority for 12 years and this change is nothing less than a snap back for Armed Services, Energy, Banking, Budget and HEW, but expect Joe Biden on the Foreign Affairs committee and Robert Byrd on Appropriations to give the administration some of the biggest headaches.

We'll have to watch today to see which defense contractors, oil companies etc. seem the most nervous about being watched -- we will call this The Haliburton Effect!

Let's not forget that, in times of uncertainty, the market tends to sell first and look for bargains later, so let's be very cautious today and keep an eye out for possible bargains for the rest of the week. I think tech will pick up nicely once things settle down as the Clinton era was all about tech.

  • Sirius Satellite Radio Inc. (NASDAQ:SIRI) had nice earnings (less loss actually), and maintained their 6.1M subscriber target for the year but, most importantly, subscriber acquisition costs dropped from $149 to $114. If they hold that line in Q4, it will be a blowout for them. We have the Dec $4s at .35, which is all profit from our roll off the sale of stock but we'll call the cost a nickel to account for commissions.
  • Merck & Co. Inc. (NYSE:MRK) should pull back more than a little as the Democrats are unlikely to give them a pass on $5.5B worth of tax liabilities. The Dec $42.50 puts are just .35.
  • Total S.A. (NYSE:TOT) announced a 34% decline in profits: "After a long period of advances, oil prices lost ground during the third quarter, following a slowdown in demand growth and as perceptions in the market about the risks related to global oil supplies eased," Total Chief Executive Thierry Desmarest said. Let's keep an eye on them today as the $70 puts for $1 might make a good momentum play.
  • Nothing says liberal like stem cell research, and StemCells Inc. (NASDAQ:STEM) is a nice little company to play for $3.07, but it's a very long-term play. Geron Corp. (NASDAQ:GERN) is another player that would benefit from more open standards for $8.38 and you should be able to sell the Dec $10s for $1.
  • General Motors Corp. (NYSE:GM) found $24M and is restating the Q3 loss to "just" $94M. I don't consider this a plus as I like my companies on the edge of bankruptcy to have more of a handle on their finances! Tougher environmental regs and mileage requirements will kill U.S. car makers for the next few years on a forced retooling of the lines.
  • Google Inc. (NASDAQ:GOOG) is becoming the new Microsoft Corp. (NASDAQ:MSFT) in more ways than one -- now they are angering YouTube users with their new "big corporate" policies, arbitrary censorship and complete lack of customer relations skills.

Let's be careful out there today, we're going to have to be nimble so tune in during the day to see how things shape up!

Read all of Phil Davis's articles on Seeking Alpha

Source: Options Trader: Wednesday Morning Ideas