React to the Reactions and Over-Reactions

Could be an Epic Week for Trading

The US Presidential election is finally here. Everyone has the horse they want and expect to win while Wall Street has its lists for what is a long and a short based on the outcome. Of course, if he wins tariff threats are bad for retailors, importers of any kind including Tesla (friend of Trump excluded?) and Apple. But, he is good for stocks given he wants an even lower corporate tax rate? At the same time, he has been bad for bonds on the worry tariffs create inflation. She is good for solar stocks and the continuation of the IRA which comes with goodies for the companies in the form of tax credits. $EWW, the Mexico ETF, is naturally at its lows with the worry of tariffs done by Executive Order. And, the Mexican Peso is its weakest since 2022 on a similar worry. Trump has been pro crypto which will move dramatically based on the winner. How the heck should a trader trade this week?

First, the moves will happen in ACTS like a play. ACT I is Monday which is sure to react to the Des Moines Register poll by well respected (and a terrific track record) pollster J Ann Selzer who has Harris suddenly up in Iowa by 3 pts 47-44. Iowa is a Red State, period. It is very unlikely she will win Iowa. However, this poll showing her leading will draw many into thinking purple States will lean Blue and the Blue Wall will be contained. That feels like a blow out for her. Already BTC is trading down 2.4% this weekend, fitting that narrative. If the narrative of she is bad for stocks and he is good (tax rates), we should see equity futures drop this evening and bond prices rally some. This would be a script that gives confidence for how to REACT for the Monday trade into Tuesday. At the right price, you can buy solar stocks Monday and perhaps sell them before the close today when we get real voting data. If they smash stocks Monday, that would likely be an over-reaction as she isn’t likely to hurt stocks over time (as Biden didn’t) and who knows maybe these polls are wrong.

Another example, if they hit Tesla Monday on Trump less likely to win, that would be an over-reaction to trade long, at the right price. BTC miners slammed on BTC drop Monday would likely be an over-reaction as the news also over the weekend about the nuclear deal between Amazon and Talon is somewhat foiled will make the BTC miner energy quick to market source even more viable and likely for hyper-scalers.

The banks are viewed as good longs if the Republicans win and tougher with a Harris administration. At the same time, this doesn’t even factor in Congress where the Senate is expected to go Red, the House up for grabs which makes split government (a big positive for equities) depending on the Presidential winner. So, you can see ACT I tomorrow reactions and over-reactions to trade as well as a square up on those over-reactions possible Tuesday. Then, will we get a definitive set of winners Tuesday night or will it take four days like in 2020? I suspect it will be Wednesday by lunch time the races are all called of consequence.

So, this should be a terrific week for trading. Earnings are mostly behind us and positioning and re-positioning will create many opportunities. For our substack paid supportive subscribers, please make sure to ask to be on the WhatsApp text list and feel free to reach out when you see a reaction you deem to continue or as an over-reaction and I will be happy to opine and help build or subtract conviction. I will be very busy trading, so I will try and respond to each text as quickly as possible.

Rob’s Educated Guesses