Don't Overthink the "Obama Trade"

The markets are lower this morning on the heels of some worse than expected economic reports as well as profit taking. The Nasdaq had been up for 6 straight days, the first time that has happened in all of 2008. I was tempted to take some profits yesterday on recent trades I've made, but held off as I see more upside still.

The October ISM Services Index came in at 44.4 (vs. 47.0 consensus), indicating the 6th month of contraction in 2008. Also, the ADP employment report showed a decline of 157,000 jobs in October (vs. 100k consensus). I would note that the ADP report has a spotty track record vs. the govt. nonfarm payrolls report, which will be release Friday.

Weak economic reports should not be surprising, and we will continue to get many more of them in the months ahead. That is what the big decline in the markets has been signaling. But the market will start to look past them at some point, and that will signal a new uptrend could be at hand. Until then, I believe the markets will remain in a trading range.

Last night was an historic election for the U.S., and you will over and over again what are the "trades" that will do well under an Obama administration. The most obvious choices are things like alternative energy and managed care. While the least likely candidates are things like big oil, coal, and probably defense.

But I would say don't worry about trying to predict the winners ahead of time, leave that for the folks that come on CNBC and are forced to give predictions. The best bet is to let the market show you the way. I am looking closely for emerging leadership in the market. The strongest stocks and groups coming out of a major correction are usually the new leaders, and those are the areas to focus on. But you don't have to move until you get cues from the market. And I will continue to provide updates along the way.

Asian markets were up across the board overnight, a nice sign of approval for Obama from global markets. The dollar is lower today vs. the Euro and the Yen. Oil is also lower, trading below $69 after yesterday's huge surge. Natural gas is bucking the weakness.

The 10-year yield had a big drop yesterday, possibly on economic concerns. It is a bit lower again today, hitting 3.72%. And the VIX was higher after the open, but has since come back down to 47.2.

The market has cut its losses in half in the first hour of trading. For now, I am still a buyer on pullbacks and would like to put more cash to work.

long VIX puts