Hold Your Fire

This week is positively loaded with event risk:

The Midterm Elections (Tuesday, after the close)

If a Democrat sweep emerges as widely expected, look for the markets to view the news negatively. It’s been a bruising campaign season, and labels like “socialist” do nothing for investor confidence. We’re not making a political judgement here, just pointing out the trends at play. Beyond the election itself, markets will have to digest the near-certainty of legal challenges all over the country from the Republican side. Again, no political judgements here, but challenges to the integrity of elections will also hurt confidence in the markets.

Iran (Wednesday?)

The Administration has signaled repeatedly that it is preparing to attack Iran again after the midterms. Qatari-led negotiations continue, which accounts for WTI crude down about 4% this morning. However, within recent memory negotiations have come and gone without success. The overtly political timing of the renewal of attacks doesn’t lend much optimism for the Qatari efforts.

Employment Report (Friday)

It seems odd to suggest that the employment report will actually be the least influential aspect of the variables at play. It’s a huge report, maybe the biggest in terms of economic outlook, but there are so many unusual crosswinds this week that it is probably standing in the shadow of the election and its aftermath.

From a trading perspective, keep your shopping list handy. There could be bargains lying all around by the time this week is done. We’re seeing a modest bounce this morning from Friday’s selloff, but the threats outweigh the opportunities right now. Held long positions may benefit from some covered call writing. Keep an eye on our trading board as setups emerge throughout this very important week.