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Playing the Downside

It will be interesting to see if the market finally sells off after this week’s highly anticipated news. As expected, the Republicans smashed the Democrats in the midterm elections by taking the House of Representatives, but fell short of also taking the Senate. The GOP also won several Governships as well. Of course this was expected by almost everybody, so the market will be put to the test to see if it can hold its huge gains.

The other huge news was the Federal Reserve’s meeting and its announcment that it will pursue another $600 billion of quantitative easing, commencing with $75 billion per month. The general expectation among traders was something in the ballpark of $500 billion. The market whipsawed around like a drunk college kid after the announcement but then settled higher as usual. It’s hard to see the market continue to go straight up after this without at least a decent correction to keep investors honest. It is usually a red flag to see it this easy to make money on the long side.


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