The overall market looks to bounce here at a 10% pull back. While the price action going into the close wasn’t the best, we still closed up 106 $SPX points off the lows. Below is the price action of the SPY. The sell off at the end of the day shows the SPY below the 200 DMA which in general is a negative market condition. Traders locking in counter trend moves would be hitting the sell button after a nice run intraday.
One thing I am looking at is the timing of a rally around the election cycle. I am reminded of the price action heading into the election lows back in 2016.
While everyone was focused on the price action of the index and how low it could go, it started to accelerate with a resounding rally. Even when Donald Trump won, which was not widely thought of in the polling, the overnight lows took the Dow futures down a 1000 only to start a huge rally.
While it is never obvious where the buyers will step in, all of the FAANG names had an up day today. Below is a view of some leading tech names including the FAANG names. Notice how all but one chart is still below the 20-day moving average. Only INTCWealth Strength IndexINTC is Extremely Up and trending Up has a positive cross on the Percentage Price Oscillator shown in the lower panel. While all the charts are close, we need another up day to close these charts with momentum improving.
One of the other charts I like to follow is the $VIX on a 1 hour chart. The $VIX has moved below the 100-period moving average for the first time since October 3, 2018. However, we need to see the indexes get above those 100 period moving averages as well. Keeping it simple here is very important. The next few days should help us get through this level in anticipation of a post-election surge and a Fed meeting. The $VIX did not shoot up as the $SPX and $COMPQ sold off in the final hour which would imply investors were not as sensitive to the move lower. The $VIX closed roughly where it started the final hour, even though the $SPX dropped 25 handles in the hour.
Trading near the lows is always volatile, but breaking a few of the downward trend lines is a start. It helps that some of the mega-cap names held up into the close as well. With Apple reporting Thursday, November 1st after the close, we’ll have another influential earnings report to help push the market around.
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Greg Schnell, CMT, MFTA
Senior Technical Analyst, StockCharts.com