Ok we’re all waiting for the vote again.  Everyone is expecting a passage so if it doesn’t this time, the market will just be blood and I think the House of Representatives know this.  So it will pass and we will rally a little bit.  Maybe we’ll rally for the next few days but we may be in for a huge drop soon.  My guess is between October 17th to November 17th.  My arguement is based on TED spread spikes where for every spike this year there has been a drop within a month or so of the spike.  The equities market has always followed the credit markets and now…the credit markets are hitting extremes which will take a very long time to correct.  Here is what I’m looking at.

The TED spreads which have real life implications unlike the stock market which is representative of human behavior and sentiment does not other than seeing our 401Ks and IRAs go down in value.  After the credit markets finally adjusted after a spike, the real life results was reflected in the market as seen below.

If you notice, the most recent drop in the market was more a result of the events that took place such as Fannie Mae, Freddie Mae, Lehaman bankruptcy, Washington Mutual, Wachovia, Indy Mac, AIG and the list goes on.  But let’s think about this last spike in the TED which is of historical proportions.  Should we have a rather historical move down in the market as a result when the problems of the credit markets really take a hit after the 30-45 day market.  Now couple that with the removal of short selling.  And add that with the selling of people who put their money in the market after the bail out?  Now that is a recipe for disaster.  Against this is just a theory, there is no solid evident behind this.  It’s your call.  But I hope that gives you some insight.

Disclosure: Long GLD