It was a wonderful election and a wonderful election night. Drama. Pathos. Tears. Edge-of-your seat election results. New twists by the minute. The Old Order overturned in an evening. A market that crashed limit down and recovered almost everything by daybreak. Epic.
But now that the hurlyburly’s done and the battle’s lost and won, as Shakespeare described a slightly different political contest, can we finally get back to business? Are the markets going to return to normal?
Maybe. But it is likely to be a new normal, less confident, more fearful and much more dangerous.
We are going to hear a lot about the President-Elect in the next couple of months, with lots of speculation about what he will do and who he will bring in to help him do it.
Some of it may even be well-informed speculation, and certainly the market will jump like an electrified frog with every new rumour and half-truth.
But there are larger forces than a new president that determine the direction of the market.
The S&P500 futures rallied from being limit down on Tuesday night to flirting with new highs on Thursday morning, even though the new president’s economic policies, if any, are totally unknown. (So much for “the markets hate uncertainty”).
The futures trade overnight in the Globex market. The S&P500 itself (SPX) only trades in the day session. So while the SPX was closed, the futures dropped more than 100 points and recovered almost all of it before the opening bell Wednesday.
But the SPX scarcely moved. It closed Election day at 2139 and opened the next morning at 2131. Unless you were trading the futures, you would not know anything had happened.
We can argue about what made the market tank and what made it recover. We can note that almost exactly the same thing happened to gold futures, but in reverse. We can mutter darkly about the Plunge Protection Team and point to the vast sums ‘earned’ by those who traded the moves – in the S&P about $10,000 per contract from both sides of a trade that was completed in roughly 12 hours.
But what we can’t do is attribute that movement to the unknown policies of a not-yet-appointed president.
There is lots to fear in this market. The returns after the completion of a second presidential term are generally negative, especially when the incoming president-elect represents a different party. Bonds are tanking and interest rates are rising. Home foreclosures and car repossessions are both up, while commercial truck sales have been down for 20 successive months. The labour market is a mess; there are now about 10 million more Americans working in government (22.5 million) than are working in manufacturing (12.5 million).
There is lots to worry about. This market is fragile and the panic selling of Tuesday night is waiting around every corner. The next time it may not be followed by panic buying.
But none of this has anything to do with Donald J. Trump.
Yet.
This week
The S&P 500 cash index (SPX) closed at 2164.45 Friday, up 79.25 points on the week for a 3.8% net weekly gain.
The election is behind us and barring some new twist everyone will concentrate on the expiration of the major November options. 2160-2140 will be a consolidation zone.
The NASDAQ has been lagging behind the Dow and the S&P, mainly due to weakness in the FANG stocks: Facebook, Amazon, Netflix and Google. It may catch up this week… or it may bring the other indices back to earth.
The SP500 index managed to hold up the 50-week moving average line and closed above the short-term downtrend channel resistance line, both encouraging signs.
2083-28 could be the low area of an intermediate-term correction, and could also be the low area for this rally. We want to see the SPX above 2200 to give final confirmation.
There is resistance at 2185-95. A failure to break above the overhead resistance zone, would mean there is still a chance the market will pull back and retest that spiking low from election night.
Today
For the S&P500 mini-futures (ES):
There was a little profit-taking in the ES Friday after the rally earlier in the week, but the price held up well. Today the ES could retest last Friday’s globex trading range if overnight trading can hold above 2150.
On the upside, ES will attempt to fill Friday’s unfilled gap at 2167.25 or go higher up to 2180.50-83.50 if the buying momentum is strong.
Because 2183-93.50 was the past month’s strong resistance zone, we may see any rally stall there, especially if overnight trading fails to move above 2165.50. In that case the price could fall to 2134-32 or lower.
The 20/40ema (daily) lines will be a key support at 2134-32. But if that support is broken the ES could retest the 200-day moving average line in the 2085 area again.
Major support levels:2145.25-44, 2136-32.50, 2126-23.50
Major resistance levels: 2193.50-95.50, 2108-10.50, 2223.50-21.75, 2231.25-34
The election night panic set up the best trading opportunity of the year for traders who followed Nat’s calls. There was $18,000 per contract in potential profit for the week, and Nat’s gold swing trade report caught the entry, the top and the bottom. You can see the details – and the trades for this week – at www.naturus.com/gold.
Chart: SPX Daily chart for Nov. 11, 2016
