Dow Leads on Gridlock Bets
The major U.S. stock indexes are trading mixed-to-higher during the pre-market session. Dow Jones Industrial Average futures are leading the pre-market rally with a 1000-point surge. S&P 500 Index futures are up about 0.8%.
The catalyst behind the early strength in the Dow is the news that the Democrats now control Congress after yesterday’s midterm elections. Additionally, with President Trump saying he will accept the results, Wall Street investors may no longer be worrying about uncertainty and backlash regarding the outcome.
Investors are also anticipating major changes in Washington, including changes to Trump’s business-friendly tax cuts, perhaps the lifting of tariffs and an end to the war with Iran that has driven up consumer and producer inflation.
Early buying reflects this potential change in tone, with Walmart and Bank of America among the early gainers.
The new Democratic Congress could also go after a few of the Trump Administration’s favorite targets such as health insurers and hospital operators. During the premarket session, United Health and HCA Healthcare are posting 1.4% gains. Centene is up close to 5% and Molina Healthcare is higher by over 6%.
The Nasdaq is not performing very well, however, because of its exposure to the AI build-out. Before the midterms, investors were already whispering that a Democratic sweep could place more restrictions on the creation of data centers across the country. This is putting early pressure on the shares of companies like Oracle and CoreWeave.
Additionally, major changes could be coming to Texas with a shift in the governor’s office from Republican to Democrat. Governor-elect Gina Hinojosa has called for an immediate moratorium on new data centers. Texas-based SpaceX is already lower ahead of the cash market opening.
Daily December E-mini Dow Jones Industrial Average
The December E-mini Dow is trading sharply higher shortly before the cash market opening on Wednesday. The market is currently in a position to challenge a major retracement zone that could determine its near-term strength and direction.
The main trend is down according to the daily swing chart. A trade through 53168 will change the main trend to up. Taking out the pair of swing bottoms at 50909 and 50859 will signal a resumption of the downtrend.
The long-term range is 55283 to 50859. Its retracement zone at 53071 to 53593 is the key to extending this rally today. Overcoming the 50% level at 53071 today will be a sign of strength. This could create the upside momentum needed to take out the main top at 53168. Taking out this level could launch a further move into the 61.8% level at 53593. This is the potential trigger point for an acceleration to the upside, with a pair of tops at 54236 and 54263 the next likely targets. This is the only resistance standing in the way of a full breakout into the all-time high at 55283.
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My focus is going to be primarily on the long-term outlook and the possibility of government gridlock. With a Democratic legislature and a Republican president, a divided government could mean fewer policy and regulatory changes, which could weigh on certain industries and sectors.
Meanwhile, a Democratic Congress could increase pressure for a faster end to the war with Iran. A reduction in geopolitical risk could weigh on oil prices and inflation, reducing the case for further Fed rate hikes.
Technically, the successful test of the 200-day moving average at 51442 overnight and the move above the 50-day moving average at 52462 have shifted my bias to the upside.
My bullish outlook will strengthen if buyers can overcome the 50% level at 53071 and the main swing top at 53168. Taking out the latter will not only change the main trend to up, but it could encourage buyers to make another run at the 61.8% resistance at 53593.
Watch the price action and read the order flow at 53593 because it could offer strong resistance. Overcoming it would provide another bullish signal.
More Information in our Economic Calendar.