President Barack Obama shakes hands with President-elect Donald Trump in the Oval Office of the White House
So, we are in a position where we have a non politician, non military US President, with some rather controversial business experience? After a just a few hours of steep falls US stock markets, and then markets around the world confounded the experts and rallied hard. What was the explanation?
On a purely trading basis, those who had been short of the market were forced to cover their positions ahead of the expected Clinton victory. Unfortunately, just as they did so the ‘Trump-Quake’ materialised and an 800-dip for the Dow.
But the real issue here is that the victory for Donald Trump, was merely a ‘carbon copy’ in the polling booths, the media and the markets of Brexit. The same trade was on, “Buy the rumour, sell the news,” with the bonus for traders being that if Trump won the dive would be greater.
It is likely there would have been at least a modest sell off even if Clinton had won. Instead, we have the Dow flirting with all time highs, the polar opposite of what “experts” in the mainstream media and indeed, financial markets had predicted.
Winners from Trump election victory?
The rub though is in the aftermath. This is the realisation that rather than being a crackpot, Mr Trump may actually have a strategy based on fiscal stimulus via building infrastructure. Ironically, shares of UK based Ashtead (AHT) have rallied strongly as the company is an equipment hire group.
More credence is given to Trump’s intentions by the 100-Day Plan he has released, focusing on repealing the main part of President Obama’s legacy, including the eponymous, Obamacare. This could boost drugs stocks as a side effect.
Other companies which have flourished in the interim are the usual suspects of mining stocks – going up on risk off fears with metals prices rising, and defence stocks. The latter may not be so much on the chance of an imminent World War III, but simply a boost to spending in this area.
Trump on tax
But what may be key over the next few months, and perhaps the most game changing, could be the approach of President Trump on tax. A mooted reduction in Corporation Tax to 15% could have the positive effect of ensuring that much of the billions stashed away by US multi-national. If even a fraction was invested back into the domestic economy there really could be a Trump Dividend to chase. Indeed, this may explain the sharp rebound on the stock market, as the America First approach starts to sink in.
What next for the Dow?
Just how much this speculation could benefit the likes of the Dow is suggested in the aftermath of the latest break above its 50 day moving average at 18,217. Above this the leading stocks benchmark could hit an implied 19,500 resistance line target from the beginning of the year.
A ‘golden opportunity’
Gold, was supposed to be one of the winners of a Trump victory, even though the initial spike up to $1,330 was sold into when the Trump rhetoric in the wake of the “soothing” acceptance speech. But given the evidence of Source, an ETF provider, which had inflows of more than US$500 million into its Source Physical Gold ETC between 1 October and 8 November this year it would appear that this is only a temporary blip. The big resistance line is at $1,330 and those who wish to wait and see on whether this really is the start of a new bull run for the yellow metal might wish to wait on this level to be cleared on a weekly close basis before assuming a return to the best case scenarios.
Looking at the currency markets, and the aftermath of the political shock saw many of the major crosses going the “wrong” way first. This is a lesson to take note of. For instance, the initial reaction to a Trump victory was the Pound rising to 90p versus the Euro, $1.2550 on the US Dollar, with these markets quickly reversing.
The same was true of Euro/Dollar which spiked to $1.13 and then fell sharply. The usual trading rule is that ahead of the biggest trending moves we see an initial counter move, then the following would be expected. For instance, the Euro, the Yen and even Sterling continue to weak against the US Dollar.
Zak Mir is the author of chart topping books, including 101 Charts For Trading Success and 49 Golden Rules of Technical Analysis, and is generally acknowledged as being one of the most experienced independent technical analysts in the UK.
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