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Waiting Game: Slow Trade Now But Look Out Tonight as Vote Results Come In

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November 8, 2016

(Tuesday Market Open) After posting their best day since March on Monday, stocks retreated a little early Tuesday as voters headed to the polls. It looks like a slow day ahead, without much news to go on.

Tonight, however, might be more interesting as futures markets begin to trade election results. The CME Group has adjusted limits for stock and interest rate futures in preparation for possible big moves, as we saw earlier this year with the Brexit vote.

Monday’s sharp gains came after the Federal Bureau of Investigation (FBI) announced it had again cleared Democratic nominee Hillary Clinton over her use of a private email server. Short-covering appeared to feed the rally late in the day as investors sought to reduce their risk exposure as much as possible ahead of the election. Some of the biggest winning sectors Monday included financials (+2.6%), industrials (+2.5%), health care (+2.4%), and technology (+2.3%). Biotech stocks gained nearly 4%. Meanwhile, yields on 10-year Treasury notes, which had fallen to below 1.8% late last week, stood at 1.82% early Tuesday.

VIX, which fell sharply on Monday, rose about 3% early Tuesday to $19.34. Yesterday’s rally may have been amazing, but there’s still nervousness today. Technical support for the S&P 500 Index (SPX) rests at 2126, so we’ll see if the market can hold that level.

Crude oil rose Monday for the first time after six straight losing sessions, though it was down in early action Tuesday and remains below $45 a barrel. Renewed talk of a possible OPEC deal helped pump some new life into the sagging crude market. This afternoon brings weekly American Petroleum Institute (API) supply data.

An additional economic data point worth watching Tuesday is the monthly Job Openings and Labor Turnover Summary (JOLTS) for September, due at 10 a.m. ET. Monthly job openings fell to an eight-month low of 5.4 million in August.

For today, investors may want to do what the pros are doing, which means not taking on unnecessary risk. Today is more of a wait-and-see game. The economy continues to show positive signs, and there likely will be lots of opportunity after this election, starting tomorrow.

S&P 500

FIGURE 1: WHAT A DIFFERENCE A DAY MAKES.

The S&P 500 (SPX), plotted through Monday on the TD Ameritrade thinkorswim® platform, roared back from its longest losing streak in 36 years to post its biggest one-day gain since last March. In so doing, it recovered much of the ground lost since Oct. 25. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Do Bulls Hibernate? As of the end of last month, just 23.6% of investors surveyed by the American Association of Individual Investors called themselves bullish in their six-month stock market outlook, compared with 42% who said they’re neutral and 34.3% who said they’re bearish. The survey has now registered 52 straight weeks of below-normal investor optimism. The historic average is 38.5% bullish. Also of note: cash levels among fund managers are high, and so is the put-to-call ratio, Briefing.com said.

Retail Sales Ahead as Holidays Approach: This is kind of a bridge week for economic data between last Friday’s jobs report and next Tuesday’s retail sales data for October. A small decline in retail sector hiring was a bit of a surprise in the jobs report, but the unseasonably warm weather gripping much of the country may be one reason for that. People might be outside enjoying themselves and putting off holiday shopping, which could play into those lower retail hiring numbers. However, if retail sales start improving, the retail sector might have to hire in a hurry for those seasonal positions. Stronger retail sales might, therefore, give a hint as to what the November jobs market could look like.

Keeping it Together: Whatever the outcome of today’s vote and however the market performs tomorrow, investors might not want to get too excited or too upset. Wednesday’s market action could be volatile, with big swings one way or another in the wake of election results, but keep in mind that, as we learned over the summer with Brexit, markets don’t go in the same direction forever. We’ve said in the past that the election is a good opportunity for investors to examine their portfolios and make sure they’re where they need to be from an allocation standpoint. The day after the election could be another chance to take a breath, watch to see how things go over the next few days and weeks, and not let emotions guide decision making. Remember, also, that volatility often means opportunity.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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