Monday, May 25th, 2020

Stock Market Wants Predictable


Stocks went up after Hillary Clinton did well in the first presidential debate. It turns out that the stock market wants predictable. Market Watch comments as stocks march higher.

U.S. stocks traded higher Tuesday, boosted in part by the outcome of the presidential debate between Democratic candidate Hillary Clinton and Republican contender Donald Trump and a number of better-than-expected economic reports.

The advance in stocks suggests that U.S. equity markets are betting that Clinton benefited the most from Monday’s presidential debate. Stocks are rising at the prospect of a Clinton presidency because the Democrat is viewed as a known quantity while some view Trump as being more unpredictable-a bad thing for stock investors.

“Investors have a better idea about policies of Hillary Clinton, so any sign she is closer to the presidency is a boost for markets,” said Diane Jaffee, senior portfolio manager at TCW.

Although traders can do better in a volatile stock market investors as well as traders need clear fundamentals to work from and Clinton is a known commodity. Trump is all about getting elected and it is unclear what he would or could do when in office.

Predictability and Stock Options

Both fundamental and technical analysis of options need a base to work from. Total unpredictability is not only chaos it is impossible to predict and make a profit from.

Technical analysis of options tells the trader what the options market will do next. Analysis of stock and market sector fundamentals will give the trader and investor an accurate picture of the long term prospects of the underlying equity. Investors and traders will often buy the underlying equity based upon future prospects. However, the expected change predicted by market fundamentals may not take place during the term of an options contract. Thus sufficient market movement to make the options purchase or sale profitable may not happen. To implement a long options strategy or short options trading strategy the trader will typically want to rely upon technical analysis of options and their underlying equities.

Whether you are day trading to scalp a bit of profit every few minutes or swing trading in search of a big killing predictable is good. The stock market wants predictable to the extent that it can make rational choices about what to buy, sell, hold or ignore completely. The legal principle is called stare decisis which is Latin for “stand by things decided.” The point is that individuals should be able to live their lives according to the laws and rules of the day without fear that someone will change everything tomorrow causing those folks hurt and loss. The stock market wants predictable because investors and traders want to make decisions that will affect their investments for years to come and don’t want someone to come in that upset the apple cart. Because no one really knows what Trump is about, except getting himself elected, he is viewed as a threat by the market and Clinton is viewed as a better choice.

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