The stock futures opened up sharply higher on Sunday evening and they never looked back. The cash market opened on Monday morning and it was a buying-fest all day long. The Dow gained 371-points and we saw 2% to 3% gains pretty much across the board in U.S. stocks.
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If you are a bull, you got one of those days yesterday that we only see a few times each year; a 2% plus gain. But of course if you've been a bull for more than a few days, yesterday's gains basically only got you back the losses you incurred since the FBI announced the reopening of Hillary Clinton's email investigation. Ending that investigation over the weekend pushed the S&P back where it was on October 28.
Now it is Election Day, and except for the media trying to capitalize for one last day on coverage with exit polling, the hype will be over and we should have a winner announced by Wednesday's open (if we're lucky.)
Conventional wisdom at this point is that a Trump win could erase Monday's gains, and a Clinton victory could keep stocks in rally mode. But let's not dismiss the possibility of a "sell the news" reaction to Monday's "buy the rumor" rally even if Clinton does win.
When the market is down for 9 straight days it starts to look for a reason to rally and we got a big one, but we have one more catalyst left and that is, who will win the election.
The SPY (S&P 500 / C-Fund) gained 2.2% on Monday during the FBI relief rally. I normally don't like to see big gaps on the charts because they are ripe to get filled, but the gap opened up on Monday looks quite similar to the one on June 28, as both saw a temporary breakdown below the 200-day EMA just before the gap was opened. The one possible picky difference is that the move on June 28 pushed back above the 50-day EMA. It's possible that the 50-day EMA could act as resistance as it tends to do in descending trends.
The DWCPF (S-fund) pushed its way back above the 200-day EMA and above the steeply declining trading channel (red) so technically it is in a lot better shape now. But again, the 50-day EMA is still almost 2% above the current level and that could be an issue if the rally does not follow-through strongly in the coming days.
The Dow Transportation Index has been on a breakout watch for us for a while and yesterday showed us that the recent relative strength was real as we see a new 2016 high on this leading index. We've been watching a large inverted head and shoulders pattern forming for months and this breakout, should it hold after the election, would give it an upside target of about 8800.
The EFA (I-fund) was up respectably but lagged some because of a nearly 1% spike up in the value of the dollar.
The High Yield Corporate Bond Fund confirmed the rally by rebounding 1.4% itself, pushing solidly above the 50-day EMA again.
The AGG (Bonds / F-fund) pulled back from the relief rally in bonds that filled the open gap and tested the 20-day EMA.
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Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
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