The stock market has once again been quite reliable in predicting election results as the outcome of the UK snap election becomes clearer. With an expected seats of around 318 as reported by Daily Mail, the Conservatives are set to lose their majority in parliament. There are 650 parliamentary seats and a party needs at least 326 to form a stable majority government.
A look at the FTSE 100 Futures, the Dow Futures, S&P 500 Futures and the Nasdaq 100 Futures tells us that the markets have already priced in a less than stellar performance by the Conservatives. As I said yesterday in my analysis, Dow Jones Index Market Analysis June 8 2017 - The UK Election 2017, no matter which party wins and who becomes the Prime Minister, UK will still be heading for a Brexit. Therefore, the major US indices and the FTSE 100 is not dropping even if the result is not what Conservatives expect.
I have updated my article titled How Stock Markets Around The World Have Correctly Predicted Elections 80% Of The Time with the UK snap election 2017 outcome. If you are interested in how stock markets around the world affects the rise and fall of governments and leaders, you might want to take a look at the article.
Let's take a look at some charts below for today's analysis.
As you can see from the chart of FTSE 100 Futures above, the FTSE 100 did rise 3 months before the election. But the gain was very small. Initially there were polls and reports that told us that the Conservatives are going to have a bigger majority of 100. Labour was expected to perform poorly. But the stock market told us to be cautious and it really does pay to listen to what the indexes have to say.
The FTSE 100 told us that:
When we look at the index, I believe it was telling us to expect the incumbent government to get somewhere perhaps between 300 to 340 seats. Not the 400 plus that early polls showed us. With the Conservative being the party with the most seats, they will have the first right to form a minority government. All they need is another 10 MPs from some other party.
On the other hand, Labour will need much more MPs from different parties to enable them to form a government. Which is why I believe the FTSE 100 did not fall as hard as it should. Investors were still expecting a Theresa May victory and not a Corbyn premiership. It will be easier for Conservatives to form a coalition government compared to Labour. We shall see how events turn out in the next few days. Right now, I think Theresa May and Corbyn will be on their phones trying to come up with partnerships with different parties.
The chart above shows how the British pound dropped hard once it was clear that the Conservatives will not have a majority. Despite the drop, do note that it fell to an area of support. Therefore, it will take some effort for the bears to overcome this area of support to drop to 1.20.
Looking at the 60 min chart of Dow above, we can see how the Dow was barely affected by the UK election and Comey's testimony. It still looks healthy and if it breaks out of the 60 min box, it will most likely move another step higher.
The QQQ and the SPY above also tells us that they are setting up very nicely for a breakout in the 60 min charts. So, we will be on the lookout and set an alarm for any breakouts or breakdowns.
Looking at the SMH, which has already broke out of many 60 min boxes, it tells us that the SPY, DIA and QQQ will most likely breakout higher rather than lower. Semis that lead the market is usually a sign of bullishness for the rest of the market.
Gold is showing some signs of weakness lately with it breaking down of another box. Currently the metal is at support area and traders would want to pay attention and see if it can form a double bottom and break above a dowtrendline higher. Any consolidation and then break below the box will most likely send the shining metal lower.
Oil is still in its own 60 min downtrend. Look at how it broke many 60 min uptrendlines. Currently it is forming a 60 min box and a breakout or breakdown will be important. A breakdown will send oil lower.
Paypal which is a Nasdaq 100 stock broke out of a 60 min box recently. The last time it broke out it gave traders some nice gain. Hopefully this time it will move higher to give traders more gains.
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