The Election and the Market…

What a huge move for the market this week! The C fund closed up over 7%, with the S and I funds closing up over 8% each! If you were watching closely, you heard the financial news pundits explain the gap up even before the dust had settled. Actually, the dust has not yet settled… The “Why” for the explosive move higher was a POSSIBLE split government going forward. The jury is still out on that, literally… The idea is that the market does best when the party in the White House is opposite that in the Senate. As of this writing, Joe Biden has been declared the President Elect. The Senate is still unknown as we await 2 runoff elections in Georgia that will define the Senate going forward.

Let’s look at this closely for a minute. The election was on Tuesday, 3 November. At the end of the night, President Trump was ahead. While there were a ton of mail-in ballots to count over the following days, there was no data driven reason to assume that Joe Biden would win the election on the morning of Wednesday, 4 November. And yet, the market gapped up huge at the open and kept moving higher throughout the week. Now, let’s back up a couple of days. The S&P actually bottomed on Friday, 30 October with a big reversal day! On Monday and Tuesday of election week the market gapped higher both days; BEFORE the election! Did the market actually anticipate an eventual Biden victory, WITH the Republicans holding the Senate, 2 DAYS before the election?? If so, why only 2 days before?? Maybe the charts can give us some real, unbiased, unemotional, actionable, information that we can use to make reallocation decisions in our TSP… !

A Very Short Term View

Let’s examine the 2 month daily chart of the C fund below. We had a big gap down on Wednesday, 28 October. Respecting this move, and expecting that price would continue lower to the 200DMA, we posted an Alert to 100% G fund. On Friday 30 October, the market put in a higher low (relative to the September low) reversal bottom; then gapped higher on Monday, Tuesday, Wednesday, and Thursday. Wednesday’s gap up was the most significant as it broke the down trend line on higher volume than the day before. By Thursday’s gap up, the MACD had turned positive; the last best day to get in as close to the bottom of this rally as possible… There are NO GUARANTEES and we do NOT have a crystal ball but, the market is in rally mode… A weekly close above 3600 would really solidify this new rally attempt!

A Weekly Perspective

Let’s broaden the aperture a bit to the 1 year weekly chart of the C fund below. We haven’t seen a week of gains like this since April’s follow thru week off of the March low. Right now, there are no guarantees. The S&P could still hit resistance before closing above 3600. Having said that, huge price moves like this don’t happen in a vacuum. I expect we will see a weekly close above 3600 within the next week or two…

The 1 Year Daily View

On a 1 year daily basis, we are a bit extended beyond the 10DMA and 50DMA. We could easily see a short term pull back this week but, IF we correct this last move, we should DEFINITELY get support at the 10/50DMA. A close below 3400 is a problem!

The S fund chart is completely different with higher highs and higher lows. The S fund remains in its up trend that began at the March lows. We need to give the S fund the benefit of the doubt here… A close below 1550 is a problem.

The I fund chart is very interesting. In last week’s post we discussed how the I fund closed below the lower channel line but found support at the 200DMA. What a difference a week can make! This week, we see the price of the I fund poking up above the upper channel line. Is it just a head fake? 66 is a pretty established upper channel line. This will be an important week for the I fund…

Bottom Line: The market is rallying in the short term. The medium and long term are still a question mark! A weekly close above 3600 on the S&P would confirm a new long term rally. Next week we’ll take a look at some charts that will show us how that medium/long term may look…

Have a great week!

Jerry