The breakout: real deal or pre-election puffery?

Who cares when you can make money either way!

It’s over.

No more election coverage. No more pundits or talking heads making breathy expansive statements based on the thinnest of evidence… no more charts or graphs showing block-by-block exit polls… no more over-parsed man-on-the-street interviews.

Finally, some blissful quiet. Gone are the exhortations to select a certain party or candidate or philosophy, and the warnings of the dire consequences should one side or the other win. The vast majority of us made up our minds which party we would vote for years ago, leaving the country fairly evenly divided between camps.

With such a divide, most campaigns were focused on demotivation… the fine art of keeping the other side’s troops home in a lethargic funk while a few activists go to the voting booths to determine for the lumpenproletariat what minor policy changes will or won’t happen for the next 24 months or so.

One would think that as large an event as the results of an election would have grave consequences for the market. Curiously enough, my proprietary analytic system, WaveStrength, puts some weight on the event itself, but really very little on its outcome.

That is because both the election results and the recent market action are end results far more than leading causes. They are the effects of great quantities of information slowly worming its way into the gestalt… molding the great voting and stock-buying herd’s consciousness.

I don’t envy the political pundit’s job. They have to tell why things happen. And the internal structure of the herd’s thought processes can be quite mysterious—note how wrong the pundits were two years ago on election eve. My job—making money off the herd when it’s ready to jump—is comparatively easy.

WaveStrength offers several stacked probable scenarios to prepare for, while index options provide tailor-made devices for capitalizing on each scenario. Using this combination of tools, Taipan readers were positioned to rack up triple-digit gains on both the agonizing two-year plummet and the recent upswing, without ever knowing “why” the market was acting in a certain way. As I sit down to write this, the December 03 Dow Jones calls (ZDKLN) that Bryan Bottarelli and I recommended in November’s Taipan have more than doubled—to US$6.50 in less than thirty days.

As I predicted last month, we are in the turbulent zone around 8,500. Note on the accompanying chart that this is the midpoint of the declining trend. That is far more important than any pre-election puffery or post-FOMC-meeting letdown. Even if we beat the significant resistance at this level (and there are now strong indications that we will), you can expect momentum to stall here for a bit.

In the 247profits e-Dispatch of 11/04/02, Bryan and I recommended that you sell the December 03 Dow Jones calls (ZDKLN) prior to the FOMC notice. We will probably post a sell alert for our put positions in the same venue shortly, as I expect a bit of retracement to improve their value in the short run—but not for the long haul.

Here’s the best part of the system: this play required no faith in the rally, as it came as a hedge and was purchased entirely from a fraction of the gains readers were positioned to make during the plunge. And riding that plunge required no belief in any particular candidate’s policies. In fact, just the opposite: it simply required a clear view of the market’s most probable behavior, and the tools to act on it.

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