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Tuesday, November 1, 2016

Daily update 11/1


One possible reason for the sell off was the ABC/WaPo poll showing Trump ahead.  This poll had been very strong for Clinton in recent weeks.  As we learned on Friday the market was clearly priced for a Clinton win.  The breadth was -74%.  New highs were 30 with new lows coming in at 83.  New lows are not all that high yet, but have been climbing up the last few days.  SPX broke the key 2120 level early in the day and the sellers piled on.  In the afternoon, the VIX spiked over 20 as SPX broke below 2100.  That brought in a wave of buying and the indexes closed well off their intraday lows.  That puts SPX well below the 2015 closing high (2130) and indicates a failure of the summer break out to new highs.  This could mean the bear market that I thought had started in May 2015 will now proceed.  Be aware that when markets get off track they often get back on track in a rapid manner.  What if we are already 18 months into a bear market with very little price damage.  The damage could come rather suddenly at some point.  The next important support level is the 200 SMA at 2080.

The futures tested below the Sept. overnight low.  That may have been part of what sparked the late day rally.  For now they are above that key support.

The red count crossed 50, but remains well below oversold levels. 

I think this was a significant break down, but that could be my bias talking.  Break downs can fail just like upside break outs sometimes do.  If SPX can stabilize and get back above 2130 then it might really take off this time.  I believe a recession is likely next year especially with the FED hell bent on raising rates.  In that scenario a bear market makes sense.

It is odd for the market to sell off going into a presidential election.  Usually it bottoms in late Oct. and rallies.  This is out of the ordinary and most likely driven by the news on Clinton and changes in the polls.  If Trump continues to climb in the polls it seems likely we will see more selling.  If Clinton is able to right the ship and climb back into a safe lead then the buyers might come rushing in.  That might take a bombshell on Trump.  There seems to be a general feeling that the FBI would not have sent the letter to congress unless there was something important in the emails.  I can see it is giving some of her marginal supporters cause for concern.  Since we won't get resolution on that matter before the election I believe it will be difficult to diffuse.  While I don't have a clue who will win I think it is becoming clear Clinton will not win in a landslide as some people thought just a couple of weeks back. 

Tomorrow is FED day.  Even though they are not expected to actually make a move what they say about Dec. could be market moving.  Current expectations for a hike next month are over 70%.  Will they keep them high or start backing off?


1 comment:

Anonymous said...

Hi Bob,
Always informative analysis- can you share a chart tomorrow that includes the May 2015 timeframe reference for possible start to bear market?


The information in this blog is provided for educational purposes only and is not to be construed as investment advice.