Gridlock is Good
Gridlock is Good
By Ian Cooper
Thursday Nov 09, 2006
Dear American Capitalist Reader,
The Dow is in historic territory, nailing an intra-day high of 12,168 on Tuesday as expectations ran high that Democrats would retake control of the House for the first time since 1994 (Dow 3,729). They did. But that’s already been priced into the market. If the Republicans win the Senate, it’ll gridlock Washington, D.C., making it difficult to make any significant policy changes. The last time the U.S. dealt with a gridlock was 1995 to 2000 when President Bill Clinton and Newt Gingrich fought. The S&P 500, for example, ran from 458 to 1,400 over that time.
Gridlock is good for a market that hates change. It raises the hope that the Street won’t have to deal obscene spending increases, legislative changes, or repeals of the Bush tax cuts, to name a few.
Other than hopes for a gridlock, the last time the Dow ran like this was May 23, 1997, when the well-known Dow Theory indicator signaled a bull market was under way. This was right before the Dow Industrials leapt from 5,800 to 12,000. Now it’s happening again… Even though the Transports are now 268 points shy of a new high, the Dow Industrials’ new closing high of 12,168 (as of 11/06/06) now confirms the high hit by the Transports in May (5,000).
Here’s why you should be excited, too… When Charles Dow put these averages on charts and said that if they both hit a significant high (or low) around the same time, then you can positively declare the start of a bull (or bear) market. It was the first case of technical analysis ever applied to the stock market and though Dow didn’t live to see it, it ran for more than 60 years without an error.
Ian L. Cooper
EVS / Early Alert Trader, Red Zone Profits