Quite a day. Massive upside gap, a rally to midday, a pause, then a late short spurt. I know over the weekend I said the market was oversold, but someone must have really been worried to unleash this kind of move. Big gains for sure, with some indices moving just past resistance, several recovering right into resistance, all sporting big single session gains.
SP500 46.34, 2.22%
NASDAQ 119.80, 2.37%
DJ30 371.32, 2.08%
SP400 2.09%
RUTX 2.48%
SOX 2.86%
VOLUME: NYSE -1%, NASDAQ -5%. Somewhat disappointing volume given the recovery nature and the size of the move. Still above average, however, as much of the volume has been, just a bit lower on the upside, huge upside at that.
A/D: NYSE 4.5:1, NASDAQ 4:1. Definitely impressive enough, and interestingly, stronger than it ever got on the selling. The selling breadth never hit an extreme level, but then again, there was a definite trigger to the Monday move versus a purely technical one.
Big move, good breadth, decent trade. Not a lot to say about this kind of surge.
The questions are more important: can it last or did it shoot all its ammunition in one move? Is there another pitfall ahead as the ACTUAL election is still to come? Can the indices and stocks take out resistance they ran into Monday? Has the large top that formed BEFORE the election-related news selling been weakened or was this just a relief move in a bigger move lower? Finally, will the Fed allow any significant selloff?
Many questions to be answered but Monday was a solid rebound that brought the indices back to test resistance in one sharp move. Some broke through near resistance, even if by a small amount, e.g. DJ30 and SOX. Others still have to show they can make the break but again, Monday was a good start.
Outside of the FBI Sunday afternoon announcement there was not a lot of news. Oil rebounded off its ugly 2.5 week selloff as a 5.5 magnitude earthquake in Cushing, Oklahoma rattled storage facilities. Moreover, hope sprung eternal regarding an OPEC supply cap agreement. Ah we are optimists are we not?
There was some M&A as NILE (the online diamond sellers) is taken private and more earnings showed conspicuous consumption being in vogue as RACE (Ferrari) raced higher with a gap and surge off its 50 day MA's. This economy has a real 1970's feel to it: stumbling along with slow growth, rising inflation, weak jobs, no investment, and the high end of the socioeconomic spectrum doing very well while everyone else struggles. We have come full circle 36 years later. What will the US voters do this time?
We picked up some LRCX and NVDA upside positions, letting other upside positions recover. As for the downside, as many rallied right into important resistance along with some of the indices, we left them to see whether they stall and fall or can muster more upside. After a big surge triggered by a specific event, they could be winded at resistance. Given the gaps higher on the open it really didn't matter if we wait and see if they give some back.
Tuesday is election day. Not sure if we will know or not Tuesday night. The polls are all over the place and again, that just says to us that it is close and it depends upon how those key states play out. If the market finds comfort in the outcome the question is whether it has the fuel to continue or if it shot it all up on this move and the overall top that formed prior to the past 2 weeks of selling holds and starts the downside again once the unknown is know.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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