November 8th, 2022

China Lifts The U.S. Stock Market

The U.S. dollar is finally showing some signs of weakness, which could lead to a bullish move in stocks. The dollar peaked on 9/26 and has been steadily decreasing, and even dipped below a moving average that has acted as support going back to February of this year.

The move in the dollar was helped by China lifting the value of the Yuan. As Xi secured his third term in office, his focus is on expanding China’s exports and eventually lifting covid restrictions to resume economic growth. This is all good news for equities.

Look at the last time the dollar came down from its high and touched the moving average. This happened from mid-July through mid-August and then compare with the performance of the S&P 500 during the same period. Here’s the dollar chart.

Now, here’s a chart of the S& P 500 during the same timeline. When the dollar heads lower, equities gain. If the dollar rolls over on its long-term moving average, we could see a push higher in the equity market.

There’s another piece of news that could be bullish for stocks, and there’s one stock I’m looking to trade in the coming days.

Today we get to vote! I hope everyone takes a moment out of their busy lives and participates. Since this article is about the markets though, I’ll stay away from the political discussions and give you some positive stats for the markets related to elections. The first 12 months after a midterm election have an average gain of 16%.

More specifically, the 60 trading days (three months) after a midterm election have historically brought an average of anywhere between 6.4% to 9.2% gains to the DJIA, S&P 500, and Nasdaq.

Even in non-election years, the S&P 500 starts its end-of-the-year push around Nov. 18th and continues until mid-December. Those are three positive stats for the market. Will this year be different? What do you think?

Let’s look at ABBVIE (ABBV) as a potential trade candidate. If we have bullish factors in place for the markets as outlined above, let’s also look at how this stock typically does during the November to December period.

The historical accuracy of ABBV rising over the next 6-week period is 76.67% and it has historically risen by 10.72% during the same timeframe.

Here’s the current weekly chart, and now that earnings are out of the way, could this be a launching point for it to go and re-test the high at $175.91?

I’m looking at the 20 JAN 23 $145 call for about $8.70 per contract. If that is too much, you can create a bull call debit spread by selling the 20 JAN $155 call. You limit your max loss to $513 and limit your max gain to $487, but it’s close to a 1:1 trade.

A sample exit strategy is to exit at 90% of your max profit or 50% of your max loss. If you haven’t achieved either of those levels by December expiration, close the position with the win or the loss and move on. You can also use a cross below the 50-week moving average as a potential exit strategy.

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Jeff Wood

Editor, Filthy Rich Dirt Poor

Trader, Options Testing Lab