This Election Market Is Not Like the Other Ones
Prior election periods had markets that were more deeply oversold than this one. Let's look. And then we'll examine GLD, MRNA, PFE, PEP, and ABBV.
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The Market
The first dip is always telling but let’s go back to last Thursday when we got oh so close to 6000 on the S&P and couldn’t cross it. Then Friday, we tried again and failed. Monday we did it on a sloppy day.
I do think we rally again but keep in mind that I keep noting we are not coming into this post election period on the same condition we came into prior ones. In the last two elections we were both intermediate term and short-term oversold. Now, we were only short-term oversold. But there is something else that needs to be addressed. Breadth.
Sure, I’ve gone on about how breadth hasn’t made a new high (it still hasn’t), but let’s look at the McClellan Summation Index. The Russell has rallied about ten percent (before today’s decline) and the Summation Index has barely budged. Today it turned south again.
I cannot stress how unusual this is. Look at all the other rallies in the Russell (brown) and notice they were accompanied by a move up in the Summation Index (blue). About the only other times it was this lethargic was in August 2023 and January 2024.
A week ago, before the election, I lauded the market for enjoying a rally with 80% of the volume on the upside. Since everyone got on board the post-election rally, we have not had another day with 80% of the volume on the upside. Heck, we’ve barely reached 70% most days.
Then along comes today and we very handily manage to get 75% of the volume on the downside. There was a lot of giveback in stocks today.
We came into this rally with the DSI for the indexes already elevated, so the runway is short for them. The VIX’s DSI is already back up to 13 (from 10), but here, too, the runway is short.
I keep trying to find another time that the semis sat it out as they have and the S&P just kept on going. The SOX has been red for three straight days. Do you realize it hasn’t gone four red days since March?
Also, the number of stocks making new lows has stayed over 100 on Nasdaq. Now the NYSE is expanding its new lows, clocking in at 64, the most in two weeks, when the S&P was much lower.
Perhaps I am being ridiculous looking for one more rally into the end of the week, trying to fine tune it too much. However these statistics from the last few days are not screaming there is a lot more to come on the upside. Not unless something changes. It looks like the best we can do is chop around as we get overbought.
New Ideas
There are a lot of questions on Gold, and many are asking, if we are going to get another bout of inflation shouldn’t gold be bought? First of all, I am not an inflation specialist but I would point out that inflation has been coming down almost the whole year and gold has been rising so maybe there isn’t a great correlation.
There is a little support at 240, and it’s getting short-term oversold, but a bounce from here looks to me as if it would form a right shoulder of a head-and-shoulders top. The real support is all the way back at 230 on GLD, if not a bit lower than that. The current DSI is 37, so it would probably take a move down there to get the DSI even flirting with a bullish reading.
Today’s Indicator
The McClellan Summation Index is discussed in full above.
Q&A/Reader’s Feedback
Today must be ‘drug’ day as most of the charts asked about are drug stocks. Does that mean there is a lot of bottom fishing in drugs?
Moderna MRNA has a measured target around 30. I see no signs of a bottom; all I see is selling. At this point in the year, it’s easy to imagine the stock will have pressure on it due to tax loss selling. What it needs is a bounce and a retest for me to even consider it’s trying to make a low. If it can do that between now and year-end, be sure to ask me again since the timing might be better. I suspect we see some improvement in the next 4-6 weeks.
I had high hopes for Pfizer PFE when it bounced off that line in June. It had a great trade and then died. Now it looks as if it, too, will have tax loss selling. There is minor support here at 26, but the good support is back in the 24-24.50 area.
AbbVie ABBV has support around 165-170 so I would expect the stock to show some stabilization/bound from there but that’s the best I can say for now.
We have had some success trading Pepsi PEP this year each time it gets into the 160-ish area. I think it’s a bit early to expect a good bounce yet but if it can bounce and come down and hold that area again into year end, it could be a good early 2025 trade.
