To The Moon

The midterm elections are over, and, as markets expected, Trump has lost control of both chambers of Congress. It is common for a sitting president’s party to lose congressional control in the midterms. While this is bad news for the president, it may not cause much disruption in financial markets—and could have less impact than comments from the Federal Reserve.

$Invesco QQQ(QQQ)$ $NASDAQ(.IXIC)$ $E-mini Nasdaq 100 - main 2612(NQmain)$ $ProShares UltraPro QQQ(TQQQ)$ $Cboe Volatility Index(VIX)$ $ProShares Ultra VIX Short-Term Futures ETF(UVXY)$

Of course, a new majority will want to make its mark. Having regained both chambers, the Democrats will undoubtedly introduce proposals aimed at challenging the sitting president, creating some short-term market impact. However, major technology companies are also among the Democrats’ financial backers. Ultimately, the policies that take effect may turn out to be more bark than bite, so the main focus should be on short-term volatility.

$S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $E-mini S&P 500 - main 2612(ESmain)$ $Micro E-mini S&P 500 - main 2612(MESmain)$ $Cboe Volatility Index(VIX)$

Is the Nasdaq at Risk of a Sharp Sell-Off?

Following the midterm election results, AI-related technology stocks sold off sharply, dragging the Nasdaq lower. Investors, concerned that AI stocks could face a repeat of the dot-com bubble collapse in 2000, rushed to sell.

$Dow Jones(.DJI)$ $E-mini Dow Jones - main 2612(YMmain)$ $Micro E-mini Dow Jones - main 2612(MYMmain)$ $SPDR Dow Jones Industrial Average ETF Trust(DIA)$

Admittedly, AI stocks had shown signs of overheating and increasingly stretched valuations. Policy pressure could indeed trigger a short-term valuation correction. However, no other industry currently appears capable of leading a renewed expansion in the global economy. After valuations reset, the sector could still merit long-term attention.

From a technical perspective, despite recent volatility, the Nasdaq’s long-term trend remains intact. The 20-month moving average serves as a long-term trend indicator for U.S. equity indices, with support currently around 26,000. Unless the index decisively breaks below that level, becoming overly bearish could leave traders exposed to losses from a sharp rebound.

In terms of trading strategy, an elevated VIX may create more attractive opportunities for selling puts on equity indices. However, anyone using this strategy must be prepared for assignment or settlement at expiry and ensure that their position size is manageable. Otherwise, the outcome could be significantly worse than expected. Holding on to an excessively leveraged position through a decline could result in substantial losses.

When selecting strikes, consider out-of-the-money puts. Although the premiums are lower, the likelihood of assignment is also lower, making them a potentially better fit for the current, somewhat elevated volatility environment.

Is the Outlook for Gold Positive?

The 4,000 level is an important threshold for gold. A decisive break below it would warrant attention. However, if gold briefly falls below 4,000, rebounds quickly, and then holds above that level, it would be an encouraging signal.

$Gold - main 2612(GCmain)$ $E-Micro Gold - main 2612(MGCmain)$ $1-Ounce Gold - main 2612(1OZmain)$ $SPDR Gold ETF(GLD)$ $iShares Silver Trust(SLV)$

Given the Federal Reserve’s current rate-hiking cycle, investors are still advised not to rush into bottom-fishing. If gold can establish a sustained base around 4,000, there may be greater confidence in following a subsequent move higher. For now, continued observation is appropriate.

From a strategy perspective, relative-value trades, such as trading the gold-to-silver ratio, may be worth watching. If gold finds a bottom and consolidates, silver prices may also stabilize. Since silver is more volatile, its percentage gains during a short-term rebound could exceed those of gold.

Interested traders could therefore consider short-term gold–silver relative-value trades: going long silver and short gold during a rebound, and taking the opposite positions during a decline.