The market has been on a wild ride overnight since the election. It seemed as if Mr. Market couldn't decide if another four years of the Obama Administration was good or bad. Initially, ES futures sold off hard as the polls closed and Obama gained ground on Romney. It then rallied soon after Obama was declared the victor and the USD weakened against most currencies. Most Asian and European bourses rose overnight. As the markets are poised to open on Wednesday, ES futures are deeply in the red and the USD has regained a bid.
Here is what I am watching. The graph below of the relative performance of SPY, representing equities and the risk-on trade, against TLT, representing long Treasuries and the risk-off trade, is forming a wedge - a sign of indecision for technicians.
Technicians often describe this pattern as a coiled spring. When it breaks out, it will typically break hard in the direction of the break.
Watch and listen to the message of the market.
Disclaimer: Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
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