What follows is an excerpt from Tuesday's note to subscribers. To become a client of Zenolytics Turning Points or to learn more click here.
The excerpt from this weekend's note is available here.
When everyone is intimated by the promise of future chaos, it is rare for the markets to fail to take advantage through some form of deception, feeding on those very fears. We now know that the market won't be feeding on those fears by moving virtually straight up through the elections, causing investors to feel like a drop is imminent at any moment. We already had the drop. That thesis is dead.
Leaving us to determine what is the path of maximum confusion from this point forward? Is the market simply kind enough to award the stampeding bulls with the steepest drop off an all-time in history to simply move back up to new highs through the event that everyone fears?
The fact that the Nasdaq dropped by as much as it did when it did means that the market is acknowledging two things:
1. We are in a highly adverse seasonal period
2. We have one of the scarier events in recent memory a short time away
This acknowledgment by the market is an indication that both adverse seasonals and difficulty around the elections are now in play. In other words, the market is going to do exactly what one would expect during the September/October period according to history, especially when a nearly impossible political event to handicap correctly lies dead ahead.
Volatility is set to increase. The volatility will feed into the fears surrounding both the seasonal period and the election.
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