New Era of Fiscal Spending Should Create Great Trading Opportunities

One of my biggest takeaways from last week’s volatile price action is that the system worked. Investors had the opportunity to react to react in real-time to fear of the unknown and to express confidence in the known. This is what we wanted all the time, the ability to trade as events unfolded before our eyes instead of waiting hours or even days to try to take protection of our assets or to try to speculate on the outcome of events and make a profit.

On November 8 when the election started to shift in Trump’s favor, investors had the opportunity to hedge their positions by shorting E-mini stock index futures contract, or buying Japanese Yen or gold. There were no secrets, no special indicators or oscillators needed on this night. Simply put, you either wanted to hold paper or a hard assets. That was your only choice. And I believe because investors only had two choices to make, the system worked smoothly.

Since the election of Trump was a big story, the moves were big. There wasn’t much noise to deal with like we have on a day-to-day basis, 5-minute charts worked just as well as daily chart. Most of the time, we didn’t have to deal with tough situations like having the 60-minute chart in an uptrend and the 15-minute chart in a downtrend. Investors were moving the markets like the proverbial knife through butter. Your choices were being dictated by two events: a Trump win or a Trump loss.

Last week’s price action also served as proof that it’s not technical chart patterns and fundamentals that move these markets, its money. And there is nothing better to cure what ails a money than fresh money, money that has been on the sidelines and is now being put to work. It was like the markets received a blood transfusion or a B-12 shot.

To those who had a successful week trading stocks, congratulations. If you endured the frustrating period from July to September when the S&P 500 Index barely moved 1-percent per day then you were paid handsomely for your patience. I hope it made you understand that no matter how good you think your trading system is, it doesn’t work without the right amount of volatility and the right amount of cash flowing into the market in your direction.

Volatility had been relatively low for such as long-time that investors had become complacent. It had become difficult to take a few bucks out of the market because the markets were not moving. Cash was flowing out of the markets instead of into the markets.

Whether you support Trump or not shouldn’t matter, I don’t think the markets care either. Last week’s price action tell me that volatility is here to stay and money is being put to work now that the veil of uncertainty has been lifted in the U.S. We may be going through a period where we won’t have to deal with the uncertainty of monetary policy for a long time. The focus will now shift to fiscal policy which also means more money will flow into an economy. This type of thinking may even flow into other economies like the Euro Zone, Japan or even Australia.

As I said before, the system worked last week in terms of having the ability to take advantage of events in real time. Now, I predict, we should be able to take advantage of a new era or cycle where economies are driven by real spending instead of interest rate decisions by a few central banks. Volatility is here to stay as well as opportunity so climb aboard and embrace it.