Talk on the street WAS that a Biden win would be bad for stocks and a Trump win would be good for stocks . The market exploded higher today at the open, even as votes continue to be counted, and the eventual winner of the Presidency is still up in the air. With so much uncertainty, why the big move higher for stocks??
Talk on the street TODAY is all about a split congress and a Biden win; which is now viewed as very favorable for the market. The belief is that the Republicans will hold the Senate. A Biden win under a split congress would facilitate passage of CoVid relief, an Infrastructure package, a new stimulus package,… all new money added to the economy and would push markets higher. A Trump win is also expected to be good for stocks by ensuring the continuation of low corporate taxes, etc… Either way, it’s a Win-Win for the market.
All of that is interesting water cooler talk but has nothing to do with why we are posting this Alert today…. Our goal is to maximize gains and minimize downside risk. We do that by watching price closely with respect to support and resistance. We utilize technical analysis tools (trend lines, moving average lines, Fibonacci retracement levels) to help us determine the best times to reallocate into the stock funds or into the G fund. It’s both art and science, and there are NO GUARANTEES. Having said that, the 2 charts below are very compelling…
The tech heavy Nasdaq Composite Index gapped up at the open and exploded higher throughout the morning. By 11AM the Nasdaq was at the top of it’s candlestick and well above both its 10DMA and 50DMA. The Nasdaq has lead the market higher since the March low. A 4% move, thru the 10DMA and 50DMA, while clearly breaking the short term down trend, needs to be respected. There are NO GUARANTEES that this new rally attempt will hold. We could see a short term pull back to support at the moving average lines. A decisive close below the moving average lines would be a failure of this rally.
The C fund chart below is similar to the Nasdaq above. On Tuesday, the C fund closed right on its 10DMA. This morning it gapped up, opening just above its 50DMA, and exploded higher throughout the morning. As we explain above, this type of move should be respected but, again, there are no guarantees. Support at the moving average lines is critical going forward.
Bottom Line: There is still risk that the market could roll over. Having said that, this huge price move and the indicators turning up put the odds of a continued rally in our favor. We need to see new highs on the C fund (above 3600). This would be the first indication that the Bullish scenario from last weekend’s Weekly Update Newsletter is actually happening. I am keeping a close eye on the 3600 level AND support at the moving average lines to the downside.