How far down the Rabbit hole is the U.S. going this time around and how will it effect the stock market?

How far down the Rabbit hole is the U.S. going this time around and how will it effect the stock market?

After yesterday swoon the markets are gapping down close to 1/2%.

Of note, financials down as is oil.

Overall it looks like a negative bias.

I have been out of the market for the most part except for the last piece of a mean reversion trade I put on a week or so ago. It is off around 2% and with mean reversion trading you pretty much have to bite the bullet and stick it out. Every study that has evaluated mean reversion trading has shown that stops or any other method of reducing risk severely reduces EV. So you either need to not trade them or stick with the plan.

You handle risk on these by position sizing on the front end.

On the news front, the White House disbanding two councils on business has taken its toll. Some CEOs had left before the groups were disbanded but in an effort to mitigate their loss the White House jettisoned both councils.

So the chaos continues in politics and it is just going to get worse. That means tax reform and infrastructure will most likely not get done this year. In addition, there will be an issue with the wall as the Dems are threatening to shut down the government if the wall is in the budget.

Now, regardless of your opinion on what the President said in Virginia, the chaos that is engulfing the U.S. is not going to be good for the stock market. Unless things turn around in our politics soon the Sept Oct period is going to be very dismal for the markets.

This is not good for any American regardless of your political beliefs. The last thing the U.S. needs is a self-induced economic pull back now because of the political chaos in the U.S. And that is where we are heading now. Be very careful if your all in on the long side of this market.

I know it’s easy to blame this on one person. But this is a complex dynamic going on here. There are many players in this dysfunction along with a variety of conflicting self-interests that are fueling this.

Humans have a great track record of self-destruction. As Douglas Hofstader said in his great book “Metamagical Themas: Questing for the Essence of Mind and Pattern”, Humans tendency is to have creativity at the individual level and at the group level flirtation with self-extinction.

That is what you are seeing here. How far down the rabbit hole the U.S. goes is unknown at this point. But the U.S. most likely has reached a new depth in the rabbit hole.

Only time will tell, however, to me they have much further to go this time around.

That means the markets are a very high-risk endeavor if I am even close to being right. The markets have had a great run. But those of you that have been trading for awhile have seen both sides of the market.

Hopefully, I am a bit delusional on this. But at age 70 I have lived in the U.S. my entire life and have not seen anything close to what is occurring now in the U.S.

It’s not all doom and gloom, however. Afterall the NFL is almost here and College football starts in less than 2 weeks:)

As to political odds, if you want Moore now in the Alabama primary you have to lay 6 to 4. I had suggested Moore was a good wager when the line was 2 to 1 the other way.

An interesting twist on this is Strange got corned yesterday by Trish Reagan and tried to get out of the corner by saying he did not hear Trumps 3rd comments on Virginia. But finally, he had nowhere to run and commented that Trump would have to explain further his comments.

Irrespective of the merits of his comment, this comes after Trump endorsed him over the nonestablishment candidate. I doubt this will be overlooked. I suspect also Trump will be considering withdrawing his appointment and endorsing Moore. Now that may not happen but the damage has been done to Strange as I see it.

He had, in my opinion, an uphill climb without his statements but in effect turning a bit on Trump should finish him off. I would still lay the 6 to 4 on Moore.

Today I will be looking for a gap fill trade. But the breadth will have to rule out a trend day down. If breadth is poor early I will probably be sitting out the day for trades.

If you want to follow some of my trades along with my thoughts typically given after the open you can go to @rickjswings. Typically I talk about the overall day expected with the markets and also give some levels on the ES and NQ for failed breakout scalping.

It’s my private twitter feed for the stock market and its free. Sports Handicapping is the subscription-based part of this site. But considering the cost of joining it’s almost free:)

Good Luck Today


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