Wall Street Approves, For now, at Least

Wall Street Approves,  For now, at least.  After the largely expected election results were out, in which the Dems retook the house and GOP retained control over the Senate, traders elected to buy buy buy sending equity markets straight up.  The S&P 500 closed right around its high of session, well above its 2792 and 2800 resistance levels and never even looked back at its 200 moving average.  Both 2800 and 2792 will serve as resistance for the index (see chart 4 in my attached daily chartbook).  The Dow Jones Industrial Average surged +2.1% in yesterday’s trade. With a close over its 26100 Fib line as well as its round 26000 resistance line the index is now back in constructive mode as it is also trading above its 200 day moving average and displays positive mid term momentum (see chart 5 in attached my daily chartbook).  The small cap Russell 2000 jumped by +1.67% yesterday, closing at its high of the session.  The index will encounter strong resistance at 1600 before it has a chance to challenge its 200 day moving average (see chart 7 in my attached daily chartbook).  Still its performance over the last several sessions has been encouraging for the index that can serve as a cult bellwether of stock strength.  Not surprising, the temperamental NASDAQ 100 surged to close up +3.07% on strength in tech shares.  The NASDAQ will encounter resistance above at 7309 and 7365.  Support will come from its 7102 Fibonacci line and its 200 day moving average (see chart 8 in my attached daily chartbook).  Bonds too gave their approval yesterday as they initially traded up along with stocks, though they ultimately faded to close well off their highs of the session  (see chart 19 in my attached daily chartbook).  Late selling was probably a result of a weak 30 Treasury Bond auction. Ten year yields closed higher in yesterday’s session at around 3.23% and have since pulled back to 3.21%, where they will start the day (see chart 20 in my attached daily chartbook).

As expected many traders are attempting to identify sub-sectors which will perform better in a divided congress and the early and easy pick seems to be infrastructure stocks, as infrastructure spending is thought to be middle ground for both parties.  The picks get a bit tougher after that, leaving traders to speculate on the election’s impact on global trade and larger macro-oriented factors.  It is important to note that yesterday’s relief rally is simply one step in the process of the market’s digestion of the current cycle.  That said the rule of the day for investors remains: stay focused as there will be many, many more up and down days on the road to reaching your long term goals.  Yesterday just happened to be one of the up ones… which felt pretty good.  Today we have a couple of minor mortgage market releases and the FOMC will vote and conclude its policy meeting.  Though the Fed is not likely to raise rates today (7.2% chance), there still remains an 80.7% chance that they will hike in December.  Additionally today’s meeting will not feature a press release, so traders will have to wait to read the meeting minutes when they are released in the upcoming weeks to get a sense of what happened behind the scenes.  That leaves traders to ponder yesterday’s weak results in the semiconductor sector, and a number of pre-market earnings releases.  After the market we get a few important earnings releases including Disney, which will have an impact on tomorrow’s trading.  The VIX is back below the magical 18 at 16.52 which can be positive, but that does not preclude the market from experiencing some more turbulence in the days ahead.  Expect much debate over future DC gridlock and the President’s war with the media and though it may be difficult, stay focused.

daily chartbook 2018-11-08