Duly on the bright prospect of Biden win as announced by the media, stocks were rising throughout the week, and paused on Friday as they were like to do. But is the big Blue stimulus really approaching? Are the elections truly settled?

Or are stocks cheering the GOP gains in the Senate – divided legislature? I am leaning towards the “irrational exuberance” over Biden’s win. That doesn’t detract one bit though from stocks’ path of least resistance being higher.

But you know, I am a little suspicious when mainstream media (who have not been too favorable to the President throughout the years really) cut his Friday’s speech in such a manner. I am sure the elections vote count (as multifaceted as the claims raised are) would go through the state courts, and land with the Supreme Court wherever necessary.

Rightfully so, if you think of it - whenever harm is done, this is the way to go if other options are exhausted. And given the polarization of the U.S. society, the current period of calm is very deceptive in my view. Looking at the George Floyd riots, the days ahead would turn restless should the courts declare Trump the ultimate winner.

Just as I said on Thursday and Friday, the current trading reminds me of the February hooray in stocks while the corona clouds gathered on the horizon – and then it just reversed as the realization dawned. At the same time though, stocks would power to new highs and finish 2020 above the early September top.

But the disappointment over no quick Blue stimulus sugar high has to settle down first. Stocks are likely to get disheartened fast – but as I am not in a position to take you in and out with my fast calls, don’t count on me issuing them. Instead, I am laying out what I see as the most probable scenario(s) to unfold, unsure about the precise timing as much as you are.

I don’t have a crystal ball either, and the best I can do for you these days, is to lay out the case fundamentally (not even solid non-farm payrolls made stocks rally much on Friday, did you notice?), and recount the anticipated reactions, sentiment and scenarios. The opportune entry point on the long side that wouldn't be so fraught with short-term risks, would come – but I don’t see it as here based on the election risks.

Yes, I’m writing these lines at another manic S&P 500 upleg (volatile moves are apt to come both ways), this time driven by the Pfizer corona vaccine news, which is likely to boost the cyclicals and confidence overall. But with S&P 500 futures spurting upwards from 3550 being a rich value at 3650 now, and given the conservative trading style that I better employ in your interests, I would prefer to wait for a more opportune entry point when there are little doubts that the buyers are exhausted.

I look for this to coincide with first Trump successes at the courts. Can you say Pennsylvania, where the mail-in ballots are kept apart? Or if it ever came to that, how do you think the markets would take to repeating the elections in the disputed states?

All right, let’s check the charts.

S&P 500 in the Medium- and Short-Run

I’ll start with the weekly chart perspective (charts courtesy of http://stockcharts.com ):

Wov, that’s quite a reversal. Despite the lower volume, the path of least resistance remains higher for the S&P 500.

The daily chart refines the short-term picture – stocks consolidated on the day, but didn’t sell off. Actually, the low volume tells me that there isn’t much willingness to sell.

Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) let off some air on Friday, but the volume didn’t make the daily decline credible at all.

Both the high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) didn't lose much ground on Friday, and they are giving signs of a run of the mill consolidation in these credit market ratios.

Overlaying the S&P 500 over the HYG:SHY ratio shows that stocks aren’t relatively too extended – quite to the contrary, both markets are celebrating.

Long-term Treasuries (TLT ETF) consider elections a done deal, and have declined on Friday. That’s a risk-on sign, and it’s confirmed by the dollar.

The greenback is agreeing with the risk-on move. And as I’ve called for earlier, the world reserve currency is only starting its decline.

Market Breadth and the Currencies

Yes, the advance-decline line has deteriorated, but I am not reading too much into this development. At the same time, a steeper decline would need to happen to present a favorable medium-term entry point from the risk-reward perspective (judged by this chart alone because as you know, my very active short-term style is way richer than acting on a handful of setups).

AUD/USD is rising, which is great – but is a little behind stocks. I consider that as a warning sign, a (rather) early one.

EUR/CHF is trading really cautiously – these are no fireworks in bullish spirits. On the other hand though, look how long it took the pair to take off – it happened only in mid-May.

EUR/JPY is similarly facing headwinds, and it doesn’t come down to European lockdowns entirely. To exercise some caution in the short run would a smart call here.

Summary

Summing up, stocks consolidated on Friday before taking off in today’s premarket on the heels of Pfizer surprise. That’s a positive development, but the elections uncertainty hasn’t been removed, contrary to public perceptions. But that’s a phenomenon that will rise and ebb over the coming days and weeks, at its own pace and timing. Bulls waiting to join / rejoin / deploy more capital on the long side, would do well by paying attention and capitalizing on temporarily discounted prices.

Thank you for reading today’s free analysis. If you would like to receive daily premium follow-ups, I encourage you to sign up for my Stock Trading Alerts to also benefit from the trading action described - the moment it happens. The full analysis includes more details about current positions and levels to watch before deciding to open any new ones or where to close existing ones.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

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Stocks are behaving as the big Blue stimulus was already a done deal, when in reality it's far from being so. They're still valid, my yesterday's lines that the markets are a bit too:

(…) satisfied with the unfolding story of Biden taking a lead as served by the media. But I view the situation as less than clear cut, and it actually reminds me of the February hooray in stocks while the corona clouds gathered on the horizon – and then it just reversed as the realization dawned.

No, I am not calling for stocks to take a plunge into a new bear market – absolutely not. To the contrary, I am calling for a springboard, for new highs and for finishing 2020 above the early September top.

Then I went into market reactions to headlines, so let's check the latest developments alongside their effect:

• Republicans strengthened in both the Senate and the House
• Yet states are magically flipping to Biden
• Stories of 750K newly discovered Pennsylvania votes for Biden or mysterious ballot deliveries in Detroit, illustrate my below points and links
• How do you call election irregularities politely?
• Can you call a spade a spade?

And S&P 500 is supposed to keep on rallying in this newfound stability as the Orange Man is banished? Not so fast, on either count. This will take time to unfold, untangle, and stocks are prone to hissy fits I talked about yesterday – their reaction thus far tells me they care more about the short-term sugar high from stimulus than about more solid, capitalist fundamentals in the long run.

One could have almost overlooked the non-farm payrolls that came in a little stronger than expected. Good, let's not lose sight of the progressing economic recovery, for it's ultimately down to the fundamentals to drive stocks regardless of e.g. short-term financial engineering (share buybacks). That's chump change though, because economic policy and total margin debt can affect the valuations more profoundly.

Repeating my yesterday's point on the game plan ahead that I hope to able to get out to you just when the time is right:

(…) it makes most sense to wait for an opportune entry point on the long side that wouldn't be so fraught with short-term risks.

Let's see in the charts how the cards are being dealt.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

The one-way elevator ride is facing increasing headwinds, and appears ripe for a breather as a minimum.

Credit Markets and the Dollar

High yield corporate bonds (HYG ETF) didn't show great strength for the first time in quite a few days – is some consolidation ahead?

Both leading credit market ratios – high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) – are clearly in the risk-on mode. HYG:SHY perhaps a bit too much right now.

The HYG:SHY overlay against S&P 500 shows that clearly – bullish spirits are running high.

But junk corporate debt to all corporate debt is turning cautious, and didn't follow yesterday's hooray. That's one of the mounting signs that I'll discuss in the precious metals and commodities section.

But first, long-term Treasuries (TLT ETF). They held steady vis-à-vis the rising stock market. They aren't plunging, they aren't spiking. Uneventful days.

It's the dollar that's the odd one here. Plunging greenback and marginally higher Treasuries isn't the most usual combination – I wouldn't be surprised if the dollar put up some fight again shortly.

That doesn't though invalidate my yesterday's point (see From the Readers' Mailbag section) about the world reserve currency being on the strategic defensive. It's just that the bond vigilantes might (and will) take ages to show up – who watches money aggregates as closely as in the late 1970s and a tad later. That's the way it is.

Commodities and Metals

Copper is somewhat hesitating in the very short run. Not too listening to the elections drama. That might be actually a wise signal that not that much in terms of economic prospects has changed thus far, i.e. the red metal isn't jumping the gun (as stocks are).

Silver fireworks are here as the white metal has lately strengthened against gold. Given the background since late October till today, I wouldn't be surprised to see it retrace a part of recent gains – that would fit the story of stocks not running higher right now, of stocks being vulnerable to a short-term, temporary takedown.

The oil to gold ratio remains under short-term pressure, and has turned lower yesterday already. That's another factor arguing for some selling in stocks.

Volatility and Stock Market Ratios

I simply don't trust yet the $VIX turning south this much, this early and this substantially. Similarly to the plunging dollar, it doesn't feel right – but the market is the arbiter, and not all pieces of the puzzle fit always together.

When the S&P 500 is stronger than international stocks, I see that as a cautionary sign within the current market context – for the short run.

This chart of U.S. stock indices firing on all cylinders put the above note on EEM into much less cautionary light – the caption says it all. And I lean towards this chart's interpretation rather.

Summary

Summing up, in today's long analysis I've made the case for why the elections are far from a done deal – and thus can bring short-term downside spike – yet was also clear on the medium-term picture being very conducive to the stock upswing (stock bull run) to continue. It once again boils down to a favorable entry point – regardless of whether stocks end higher today, I would wait for a more favorable risk-reward ratio (the risk of a sudden, quick plunge with relatively fast recovery, is still there in my opinion). I am simply picky about the momentary opportunities given how fast I can get the message out to you at times.

Thank you for reading today’s free analysis. If you would like to receive daily premium follow-ups, I encourage you to sign up for my Stock Trading Alerts to also benefit from the trading action described - the moment it happens. The full analysis includes more details about current positions and levels to watch before deciding to open any new ones or where to close existing ones.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

• Read more

Stocks rallied as the election news progressed, satisfied with the unfolding story of Biden taking a lead as served by the media. But I view the situation as less than clear cut, and it actually reminds me of the February hooray in stocks while the corona clouds gathered on the horizon – and then it just reversed as the realization dawned.

No, I am not calling for stocks to take a plunge into a new bear market – absolutely not. To the contrary, I am calling for a springboard, for new highs and for finishing 2020 above the early September top. But given the dynamics of market reactions to the headlines presented in yesterday's regular Stock Trading Alert:

(…)

• No blue wave, which means no large stimulus bill
• S&P 500 sold off well below 3350
• Gold and oil were hit on the realization that Trump isn't down and out (I expect him to put up a fight – he can still win)
• Yes, there won't be a sugar high from a large stimulus, but his business and tax policies are much more supportive of the real economy than Biden's plans
• Sooner or later the market would come to realize that instead of the short-term disappointment in no quick fix
• Still on the night, Trump already claimed he won, sending markets into a tailspin
• This is where the above mentioned market realization comes – stocks, gold and oil all reversed higher, going right into the "uncertainties" undaunted and not blinking (that's my favorite way of dealing with stuff too)
• While the bookies hiked Trump's odds of winning, it won't be a smooth sailing ahead – I look for namely the Pennsylvania, Michigan and Wisconsin voting to be challenged, for obvious reasons (perhaps Nevada too)
• Should stocks continue on their sharp, ultra-sharp upswing today, they might give up part of their gains even before it comes to recounts (I wouldn't be surprised about the Rust Belt experiencing them really),

I see great potential for a short-term disappointment – and a temporary setback ushered in by the constellation I described late yesterday:

(…) It seems everyone and their brother are expecting Biden win – and stocks led by tech have taken off understandably. But my point is not to debate whether he would be declared by the media as winner in Wisconsin, Michigan, Maine, Arizona or Nevada.

Given the Rust Belt situation, I look for Team Trump to introduce some uncertainty into the markets, and the question to me is when would that happen. I.e. when would the proceeding be initiated. Not that they would not find reasons good enough to take legal action.

If you remember, the S&P 500 plunged overnight to 3320 when Trump declared victory. Should the markets feel getting rocked, they might throw a tantrum again. After all, it's the size of the stimulus that's at stake.

The above intraday Alert also contained tightening of currently open trade's parameters, yet due to the internal publishing reasons, it couldn't have gotten to you fast enough to spare you some of the overnight downside. An hour of delay counts, and you've certainly noticed that I am not featuring as many trade calls in the post Sep 30 era as I did before Sep 14 given the circumstances.

While a viable compromise can be reached during calmer market environment (established trend with both short- and medium-term indications pointing the same way, less headline sensitivity, lower volatility and politics not stealing the spotlight), this is not the case currently, and the overnight experience proves that.

While I could take with clear conscience a long position on Oct 01 and exit it on Oct 12 for a 155-point gain, and similarly found it justified to go long again on Oct 13 at lower prices than when I exited the prior long, the steep plunge lower in the pre-election week was a stomach churning experience since $VIX spiked on Oct 26, only to move from below 30 at Oct 23 to above 40.

But I could have stayed long, as it was the short-term outlook that was under pressure – the medium-term and 2016 analogy supported a reversal of fortunes. I am happy that it came and that my validated analysis brought us back almost to B/E. When I saw the sputtering at 3480 yesterday, I looked to tighten the open trade well above the pre-market local top at 3430, as that would be reasonable from the risk-reward perspective.

Instead with time delay, I had to readjust to the pace of late session's decline, anticipated after-market correction's shape that took us out by less than a 1-point move. It can happen, market do undershoot or overshoot realistic targets at times. But such little things add up to the bottom line of results, they manifest themselves on the equity curve.

It's my interest to see you prosper as you come first, and while I can over time easily recover from such little mishaps (that wouldn't have occurred under optimal circumstances though in the first place, that's the gist here) in the region of 20 or 30 points, I won't expose your precious capital to wild swings of over 100 point intraday moves and accompanied by sizable gaps on top, when I can't react immediately with your best interests at heart.

I am here to be bringing you the very best in myself, to the full of my skills and abilities. And turning on a dime in trading is part and parcel of what I bring to the table. At times, such fast adaptability isn't the make-or-break characteristic of trading results, but in the unsettled post-elections dust (how long the legal battles would draw before justice is served, is anyone's guess) and heightened volatility in both directions in the now, it is.

And that means that dutifully and faithfully commenting on the odds of stock market moves (both in the moment and both short- and medium-term), on their drivers and expectations for the future, while keeping the trade calls to a minimum until conditions more conducive to medium-term trades (as opposed to very short-term momentum or reversion to the mean ones entered and exited at immediate notice) arrive again.

It's my opinion that the market is acting a bit too complacent about the election results. The Republican grassroots opposition is rising in places like Arizona, while Wisconsin, Michigan and Pennsylvania will see scrutiny not only as regards the unprecedented overnight counting break with ballots in the interim going almost fully in Biden's favor, but also the suspicious voter turnout in several Milwaukee wards of over 100%.

Knowing how hard stocks turned south when Trump won Florida, declared victory, or vowed to challenge the results in the Supreme Court, it would be irresponsible of me to put capital to work when charts such as the below Michigan and Wisconsin night voting tally are making the rounds courtesy not only of Natural News reporting:

The markets are extremely sensitive to politics right now, and justifiably so. It's about the stimulus next, and they're underappreciating the Republican Senate. Hard to say when they would take Trump's crusade seriously – but when they do, I look for the S&P 500 to weaken.

And as the medium-term trend is up, and would remain up thanks to Trump's pro-business and tax policies (or the salivating prospects of a multi-trillion Biden stimulus), it makes most sense to wait for an opportune entry point on the long side that wouldn't be so fraught with short-term risks.

Let's do a quick check on the markets yesterday, and answer one timely question next.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

Another day solidly in the black, yet showing the rally giving off some hot air late in the day, illustrating the very direct impact I described above. Regardless of the election tremors, it's an upswing within a larger uptrend, but it's pretty volatile as it's about… tremors.

Credit Markets' Point of View

Great strength in high yield corporate bonds (HYG ETF) again – but with this high a volume, some consolidation next wouldn't be all too surprising.

Both leading credit market ratios – high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) – keep abundantly clearly trading in the risk-on mode.

While that's positive for the stock market, and telling of willingness to move forward, I don't think we've experienced all the volatility there is in store in these elections yet. Still, the markets are leaning bullish yet I don't view them as immune to a short-term news-induced takedown.

From the Readers' Mailbag

Q: Hi Monica, it's more a comment than a question but maybe you will like to say something - if yes, go ahead. I am very wary at the moment on sp500 so have not entered a position. My thinking is the US dollar is going to make a run as the 30yr bond is rising and that can be real scary. But thank you for your trading tips you do a great job.

A: Thank you for your appreciation – I'll definitely respond to what I perceive to be the main theme(s) of your question. First, I've laid out the case above why this level of volatility, headline sensitivity and influences outside of economics (I mean beyond the stimulus or Fed moves) make it impossible to responsibly enter or exit brief trades without ability to execute the calls right away, and hamper mamagement of existing positions. Thus, I perfectly understand your risk aversion at the moment – rest assured, there'll be always opportunities in the markets, so keep being picky about the most promising ones, about a defined, palatable and manageable risk.

I am also watching the developing pressures in the bond and currency markets. Not if but when the bond vigilantes wake up from their slumber since 1981, it'll be a show (of horrors, if you will). Regardless of the short-term moves, I thus see the dollar as on the strategic defensive, just as you do. Thus far though, gold has predictably risen strongly today while oil isn't really badly hurt. The bond vigilante dynamic will take a long, long time (years) to unfold – there is still confidence in the Fed to save the day.

Summary

Summing up, today is one of those rare days when reading the full analysis is justified regardless of the seemingly one sided S&P 500 move. This move though is well supported by the many other markets on my watch, but I'm not ruling out a hissy fit in the short-term in the least.

Thank you for reading today’s free analysis. If you would like to receive daily premium follow-ups, I encourage you to sign up for my Stock Trading Alerts to also benefit from the trading action described - the moment it happens. The full analysis includes more details about current positions and levels to watch before deciding to open any new ones or where to close existing ones.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

• Read more

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