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Monday, November 7, 2016

Daily update 11/7 Finally

I had to run up to the post office to pick up a couple of packages and I heard two people gabbing.  One of them says I will be so glad to get this election over with.  I thought to myself that was probably the single most expressed thought today. 

The relief rally I talked about on Friday got off to a world wide start after the FBI said there was nothing new in the emails.  This is not fundamental information for the market.  That makes it kind of tricky to say we have a bottom and its upward and onward from here.  Breadth was +80%.  New highs increased to 73 while new lows slipped back to 28.  Nothing conclusive in the stats.  SPX closed above the 20 SMA.  It is another 16 points up to the 50 SMA.  Volume was a bit lighter then yesterday. 

The futures got over the 50 SMA.  They actually made it all the way up to the upper channel line.  You don't see them cross the entire channel in one day very often.  There is still a ways to go to the downtrend line.

The green count crossed over the red, but did not make it to 50 yet. 

The bull pressure lines got closer together the last couple of days.  Some people are comparing this to the brexit dip vote.  While the VIX spiked up like it did then look at the long term lines in the lower panel.  At the brexit bottom they were still positively crossed.  This time they have been negatively crossed for over 3 weeks.  The market can do anything it wants and this could be an important low and it is off to the races to new highs.  However, that might not be the case.  The market needs to prove itself.  On that note take a look at the transports.

The transports broke out of their multi month trading range.  They are still well below their 2014 high.  We will have to see if the break out sticks.  The volume was not particularly high.  I heard some crowing about this on TV and what a great sign it is.  That is possible, but there is one caveat.  Long only money managers main goal in a down market is to lose less then their benchmark which is usually SPX.  One of the most used tactics is to buy already beaten down stocks in the hope they will go down less.  The money that just came out of the high flying stocks like FB that sold off is probably moving to safer stocks.  The transports TTM P/E is 15 compared to 23 for SPX.  If this is a valid break out and it sticks it could be an indication the global economy is picking up.  This is something to watch.

I certainly will be glad to get the election over.  After the surprise brexit vote I don't know that the polls can be trusted.  The media is clearly slanted towards Clinton and the media is involved in all these polls.  Investors are once again convinced she will win.  Recently I heard talk about how pollsters were having trouble getting respondents.  Apparently they get the most accurate results from landline calls which nobody answers anymore.  I also have heard lots of talk about modeling results based on the 2012 election.  That suggests they don't have a statistically valid sample size.  Any type of modeling based on the prior election voting pattern is likely to be flawed this time.  We have a much different situation then 2012.  Anybody remember 2000 when the election ended up in the supreme court.  Maybe everything is decided tomorrow, but I don't think that is guaranteed.  That could throw a monkey wrench into this market. 

The way the ticks acted today indicates this rally was mostly index driven.  That kind of move is unreliable in determining future direction.  Sometimes things broaden out and people start buying individual stocks and sometimes the market rolls back over and heads south with a vengeance.  Things are up in the air here.  Maybe Wed. things will be settled and we can see what the market reaction is.


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