The clock is ticking on our expected bottom formation and now is the time for skilled traders to begin to position their trades for the remainder of 2018 and early 2019. We detailed why we believe the US equities markets have already, or are currently, hammering out a price bottom after the last few weeks downside price activity. In part one of this article, we illustrated how the US elections cycles are really more of a global geopolitical event and often drive price rotation in the months prior to these elections. Please take a minute to read Part 1 of this two-part research post if you have not already done so.
In this second part of our US election research post, we are going to continue to review topics that were previously discussed as well as highlight how certain market segments appear to be setting up for a massive price reversal. So, let’s get started.
Keeping in mind the information we presented in Part 1 of this research, our hypothesis is that US elections cycles present a huge opportunity for skilled traders by creating volatility and rotation in price and many segments of the global markets. Over the past 3+ years, we have been writing about what we call a “capital shift” that has been taking place. Near the end of the Obama presidency (2015 & 2016), a number of factors were taking place in the US and global economy. First, the start of the new Presidential Election cycle events was already working through the news cycles – the selection of the candidates. Second, China had recently instilled capital controls to prevent a capital outflow issue and to support their bulging economy locally. Lastly, emerging markets and oil had collapsed, putting incredible pressures on certain foreign markets to support their local economies and find suitable sources for their investments as currencies started to collapse as well.
This event, that actually started in 2014 or so, initiated what we call the “capital shift” where cash quickly moved out of risky investments and hunted for and deployed within safer investment structures – the US and major global equity markets. In particular, we believe the US Technology, healthcare and biotech sectors were huge beneficiaries of these new capital investments and we believe as these share prices started increasing, more and more capital kept flowing into these sectors – like a dog chasing his tail. The price advances seem to never end… until the 2016 election cycle event. This caused the entire global equities markets to pause for a few months as Hillary Clinton and Donald Trump battled it out.
