Stocks jumped out of the gate yesterday after a long night of election punditry. The Dow gained another impressive 368-points, making it a huge 3-day rally for the market. The Nasdaq was a big winner as large tech dominated the day. There were some negatives with the fade into the close and some weak internal numbers which we will talk about below. Bonds rallied on a drop in yields.
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I couldn't make much sense of what the market was reacting to yesterday and in the prior overnight trading, but the fact that the futures were up when it looked like Trump was well in the lead, and it stayed up when Biden came back, tells me that I may have been onto something when I said I didn't think the market cared who won the election. The question was, how would it react if no winner was called, and we found out, it didn't seem to care that much again.
I think what the market was excited about yesterday was that congress remained split with the democrats winning back the House, and the republicans holding the Senate. That means tax hikes will be tougher for Biden to get if he ends up being the winner, and maybe to a lesser extent, the democrats wouldn't be able to "pack the court" as they talked about if they took control of the Senate. Anything that keeps big changes from being made is generally good news for Wall Street.
So the market was trying to make sense of a crazy couple of days. It seemed like pretty bullish action, but the internals, the bond market, and the broader market was telling a slightly different story as the Nasdaq was doing most of the heavy lifting while the rest of the market, particularly those indices that don't have large tech stocks in them, didn't do quite as well.
The share volume advance / decline ratio was actually negative on the NYSE, if you can believe that on a day like yesterday. And of course the Nasdaq volume was 2 to 1 advancing over declining, so it was a tech led rally.
If we look at the S&P 500 Equal Weighted Index, which is the same 500 stocks as the S&P 500 index that was up 2.2%, but measuring each stock equally rather than by market cap, and we see a different picture as it was only up 0.08%. Same stocks with a different way of measuring them.
Bond yields tanked on the day, and that may have had to do with either Biden's lead and his campaign promise of a dark winter and shutting the economy down to try to alleviate COVID, or even the issue higher taxes for corporations and higher income intervals, which could slow growth. Whatever it was, yields fell and that put a lot of pressure on bank stocks, particularly the region banks, which you can see below rely heavily on that 10-year yield for direction. The yield on the 10-year dropped by about 13%, which sent bond prices higher.
Also, the Russell 2000 was flat yesterday because it contains a lot of those smaller regional bank stocks.
The October jobs report comes out on Friday and estimates are looking for a gain of about 675,000 jobs, and an unemployment rate of 7.7%.
The S&P 500 (C-fund) shot up dramatically in another emotion day of trading after the election. Another gap was opened below 3400, and the index did close well off the high to possibly be considered a negative reversal day. We had a similar close on Tuesday and that didn't manifest into anything negative, although the election was certainly a factor there. These reversal candlestick patterns haven't been as effective lately at calling actual reversals recently. A few did.
The DWCPF (S-fund) lagged a bit as the Russell 2000 small caps index actually closed flat on the day, so the fact that the S-fund had a 1.6% gain may have been the surprise of the day. That is unless...
... we look at the Transportation Index which lost 1.45% yesterday. You ask, how could that happen on a day where stocks were soaring? It's about the economy again. This is a very economically sensitive index and the thought of further shutdowns nest year in a Biden presidency left the Transports very concerned.
The EFA (I-fund) picked up a healthy gain, popped back above its 50-day EMA, but also closed well off the highs creating a possible negative reversal. The large open gap from Tuesday is clearly a threat to be filled in the coming days. Gaps that size don't tend to stay open very long.
BND (F-fund) rallied sharply on the drop in yields as economic concerns hit the bond market. The descending channel broke and a large gap was opened, and in the coming days we will find out if this was a knee-jerk reaction, or if the bond market is really concerned about a weak economy going forward. If somehow the recounts put Donald Trump closer to a win again, bond prices would likely drop back down from here.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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I couldn't make much sense of what the market was reacting to yesterday and in the prior overnight trading, but the fact that the futures were up when it looked like Trump was well in the lead, and it stayed up when Biden came back, tells me that I may have been onto something when I said I didn't think the market cared who won the election. The question was, how would it react if no winner was called, and we found out, it didn't seem to care that much again.
I think what the market was excited about yesterday was that congress remained split with the democrats winning back the House, and the republicans holding the Senate. That means tax hikes will be tougher for Biden to get if he ends up being the winner, and maybe to a lesser extent, the democrats wouldn't be able to "pack the court" as they talked about if they took control of the Senate. Anything that keeps big changes from being made is generally good news for Wall Street.
So the market was trying to make sense of a crazy couple of days. It seemed like pretty bullish action, but the internals, the bond market, and the broader market was telling a slightly different story as the Nasdaq was doing most of the heavy lifting while the rest of the market, particularly those indices that don't have large tech stocks in them, didn't do quite as well.
The share volume advance / decline ratio was actually negative on the NYSE, if you can believe that on a day like yesterday. And of course the Nasdaq volume was 2 to 1 advancing over declining, so it was a tech led rally.
If we look at the S&P 500 Equal Weighted Index, which is the same 500 stocks as the S&P 500 index that was up 2.2%, but measuring each stock equally rather than by market cap, and we see a different picture as it was only up 0.08%. Same stocks with a different way of measuring them.
Bond yields tanked on the day, and that may have had to do with either Biden's lead and his campaign promise of a dark winter and shutting the economy down to try to alleviate COVID, or even the issue higher taxes for corporations and higher income intervals, which could slow growth. Whatever it was, yields fell and that put a lot of pressure on bank stocks, particularly the region banks, which you can see below rely heavily on that 10-year yield for direction. The yield on the 10-year dropped by about 13%, which sent bond prices higher.
Also, the Russell 2000 was flat yesterday because it contains a lot of those smaller regional bank stocks.
The October jobs report comes out on Friday and estimates are looking for a gain of about 675,000 jobs, and an unemployment rate of 7.7%.
The S&P 500 (C-fund) shot up dramatically in another emotion day of trading after the election. Another gap was opened below 3400, and the index did close well off the high to possibly be considered a negative reversal day. We had a similar close on Tuesday and that didn't manifest into anything negative, although the election was certainly a factor there. These reversal candlestick patterns haven't been as effective lately at calling actual reversals recently. A few did.
The DWCPF (S-fund) lagged a bit as the Russell 2000 small caps index actually closed flat on the day, so the fact that the S-fund had a 1.6% gain may have been the surprise of the day. That is unless...
... we look at the Transportation Index which lost 1.45% yesterday. You ask, how could that happen on a day where stocks were soaring? It's about the economy again. This is a very economically sensitive index and the thought of further shutdowns nest year in a Biden presidency left the Transports very concerned.
The EFA (I-fund) picked up a healthy gain, popped back above its 50-day EMA, but also closed well off the highs creating a possible negative reversal. The large open gap from Tuesday is clearly a threat to be filled in the coming days. Gaps that size don't tend to stay open very long.
BND (F-fund) rallied sharply on the drop in yields as economic concerns hit the bond market. The descending channel broke and a large gap was opened, and in the coming days we will find out if this was a knee-jerk reaction, or if the bond market is really concerned about a weak economy going forward. If somehow the recounts put Donald Trump closer to a win again, bond prices would likely drop back down from here.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
