Starting on Friday with the release of US 3rd Quarter GDP the markets will begin a wild and volatile ride. A stronger then expected GDP number could send a signal the the QE2 package to be announced the next Wednesday’s Federal Reserve meeting will be smaller than expected.

Of even more interest will be the Personal Consumption Expenditure number which measures the amount of consumption by US households. A strong increase would be a sign that consumers feel confident in the future.

Personally, my expectation will be for a stronger than expected GDP number which will likely be revised downward anywhere from 0.5-1.0% in November and December.

Once the market takes the weekend to digest the 3rd Quarter GDP numbers and what they mean for election day we will be be hit with the major portion of the storm on Tuesday and Wednesday.

Tuesday is Election Day in the US and rumors are circulating about the Republicans taking back both houses of Congress in what will be a hotly contested election.

Both Democrats and Republicans are making a strong push to the finish line as a number of close races around the country bear monitoring.

In states which allow early voting Democrats are coming out early and strong. This may backfire as a strong early lead by the Democrats could fire up the Republicans to put more effort getting voters to the polls.

On average, the sitting party loses approximately 26 House seats and a few Senate seats in the mid-term election following their election which signals a move to the center in order to win a second Presidential term.

On Wednesday, voters will wake up to a new Congress and later that afternoon the Federal Reserve will unveil their QE2 program followed up by the October unemployment rate on Friday.

As for the markets, it appears as though QE2 and Republican control of both houses have been priced into the market right now and markets appear to be in a topping pattern. We are within 3.5% of the high made in April of this year so it would not be surprising if there was a push towards the old high before the markets sell off into November and the end of the year.

I am basing this on strong bullish ratings from AAII, overbought technical indicators, small investors once again piling back into the market, and a significant portion of good news already priced into the market.

While the market has just experienced a bullish cross and this does bode well for the market in the future it does not discount a potential correction in the near-term which should take us down to the 50 day moving average.

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