Macro Market · Uncategorized

Daily Commentary – Timely Comey Comedy

A well-timed twist in the FBI investigation gave a much needed lift in stocks over the weekend, just a day ahead of the Election Day. Dubbed the “Comey Comedy” by social media, 8 days after he dropped a bombshell that the Clinton email probe is to be reopened, “FBI Director James Comey told lawmakers Sunday the agency hasn’t changed its opinion that Hillary Clinton should not face criminal charges after a review of new emails.”

http://edition.cnn.com/2016/11/06/politics/comey-tells-congress-fbi-has-not-changed-conclusions/index.html?iid=EL

Jury is still out whether it is a game changer for the Election outcome, but it does sure looks like one for the stock market in the ST, as the Dow not only rallied a spectacular 371 points but also squeezed above 50DMA and descending trendline off the YTD highs. Next target points to a retest of broken up trend off YTD lows.

20161108-INDU.png

The bounce also snapped SPX’s longest losing streak since 1980 at 10, while the VIX plummeted 17% to 18.71%. As mentioned last week, implied vol remains elevated and hence still plenty of mean-reversion to go with realized volatility at a muted level. Technically, VIX likely retraced to 16% area where there will be a confluence of support from 20DMA, 200DMA and retest of broken downtrend

20161108-VIX.png

Green across the board today with the IBB up 3.8% and holding the bottom of consolidation thus far. The sector we ought to highlight today is the Financials (XLF) which rocketed 2.5% to propel at new swing highs. The 2015 post-crisis highs north of 20 handle looks most certainly be tested:

20161108-XLF.png

Shifting gears to other asset classes, we ought to check out the Gold chart, as a large H&S pattern which we cautioned previously is brewing after a large decline off the right shoulder. A close under trendline support at 1270 would point to retest of recent lows and potentially the neckline just under 1225.

20161108-GOLD.png

The US Dollar’s renewed strength was catalytic in Gold’s fall, as the DXY was able to charge back above the key July swing point. 98 is next near term target where it may form a H&S pattern of its own:

20161108-DXY.png

Now is it smooth sailing from here for US markets? Polls continue to suggest a Clinton victory as according to Reuters has a “90 percent chance” (whether that is accurate is another story but that is at least how market is pricing it in):

http://www.reuters.com/article/us-usa-election-poll-idUSKBN1322J11

But even in that scenario, the chart pattern in Russell 2000 (IWM) suggests that the rally should be sold into. As we have discussed the past few weeks, IWM has been the leading indicator on the downside, and despite the sharp bounce yesterday, IWM remains under crucial resistance and LT trend continues to point down. More importantly, these sharp bounces off intermediate lows historically point to a lower low to follow suit after the rally petered out at 20 or 50DMA.

20161108-IWM.png

So whether you are a bull or bear, opportunities await after the US election drama comes to an end. In case of a Clinton victory,

  • If you are a bull, don’t chase into this rally and wait for the “sell-the-news” correction to play out.
  • If you are a bear, you should hope for a spike up to sell into IWM, which likely will continue underperforming broader markets going forward.

If Trump wins, then lights out and cash remains the best position until there is more clarify from both fundamental and technical perspective.

All things considered, we are in the camp that US markets are due to correct further regardless of the outcome, and we recommend shifting to other markets which have more upside potential. One example is the Spain ETF (EWP) which finally broke LT downtrend and last week backtested it, and in the long-run should rally towards 200WMA at 30.94, about 10% from current price:

20161108-EWP.png

Week Ahead – Events and Economic Data

11/8 Tuesday

Time Event / Data
10:00am JOLTs Job Openings
7:00pm Polling stations start to close and first state projections made based on exit polls
11:00pm Earliest possible time the election will be “called” for either candidate by US TV networks

* US Election Day Schedule

http://www.telegraph.co.uk/news/0/what-time-are-the-us-election-results-in-the-uk-and-what-is-the/

 

11/9 Wednesday

Time Event / Data
10:30am Crude Oil Inventories

 

11/10 Thursday

Time Event / Data
8:30am Initial Jobless Claims

 

 

11/11 Friday

Time Event / Data
10:00 Michigan Consumer Confidence

 

 

 

 

 

 

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