Following Election Day, the stock market is in a risk-on mode, with Dow Jones in the front seat. As it was the case in 2020 so far, Nasdaq 100 stole the show, as it is up 7% in the last two trading days. However, Dow Jones’ bounce cannot be ignored, and bulls look at the recent rally as just another small step until a new all-time high.
Even if that is the case, bears will not give up that easy. That is especially true considering the implications of a tight result on the US elections.
Possible Votes Recount Spells Trouble for Equities
Trump will not let go of the power that easy. While a Biden win seems to be within reach, Dow Jones bulls may reconsider their position after the recent rally.
First, Trump threatened with the Supreme court. Second, he demanded a recount in some states. This is not unprecedented and may easily take place. However, if we check the last time when it happened, in the Florida recount during the Bush/Gore election, the market dropped over ten percent.
This does not mean that will happen in 2020 too, but one should wonder if this would not drag on equities, should we not know the winner in a month or more.
One thing to look after is for the Republican party members to distance themselves from Trump. Yes, there will be some noise, lawsuits, recounts, but if Biden wins and the votes show that there is nothing to be done and eventually the transfer of power will take place. However, it may still take some time, and the economy is in dire need of help. Hence, economic data might get worse and, above all, COVID-19 might as well.
Dow Jones Bearish Setup
Bears may want to try to sell the Dow Jones index by the time it reaches the two levels on the chart above. For the stop, they may want to use 31,000 and for the target a risk-reward ratio that exceeds 1:2.
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Dow Jones Daily Chart
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