Markets Quiet Before The Storm

The markets went up dramatically yesterday and today it is very calm and lukewarm. It does look like yesterday’s action was the recognition was that Clinton is going to win. I guess the question in everyone’s mind is what happens tomorrow – the day after the election. In general my sense is that the risk is still to the downside. There are several reasons for that. One is that Clinton wins but not with a good mandate. This could even mean (at its worst) a contested election result. That is a really bad situation for the markets. Of course if Trump wins all bets are off. If Clinton wins with a large mandate then markets could go higher.

Let us not forget that the general trend of the market is down. The SPY bounced but is still trending bearish. Same with IWM, EEM and QQQ. The XLF is showing signs of bouncing back towards a bullish trend but it is alone in that action. The XLV and XBI are still broken.

So, I am still hedged as I see the risk to the downside.