Aren’t you glad the election is over? Putting the politics aside, America has to be darn proud of itself, given our checkered history, to elect an African American to the White House.
On Tuesday a good dose of euphoria materialized. Do you want to chalk it up to the election? This time the answer is absolutely! By Tuesday afternoon, there was a not so quiet case of joy developing on television. The talking heads all had smiles on their collective faces. Can you blame them? Let’s face it, the maddening crowd wanted to go in a different direction and that’s what they got. But here was the problem for the stock market. There is no crying in baseball (Tom Hanks) and happiness is not allowed in the stock market.
The market tried to sell off on Tuesday afternoon, couldn’t do it but got the bear ball rolling first thing Wednesday morning. I told you last Monday the technicals were set up for a fall. So what does this election mean, going forward? I don’t analyze policy, I leave that for others. But this is what you should watch for. Are we going to hope that Obama’s policies work? Are we going to worry that they won’t work? Democratic pundits are already debating how he’ll govern. Will he go to the left or stay dead center?
Why do we care? Bear markets ride a slope of hope. Bull markets climb a wall of worry. Euphoria killed the market for this week, but the truth of the matter is we need to have the new President inspire confidence in order to develop a rising social mood. If all we do is hope, we’ll have phase II of this bear at some point but if some of the policies take root we can have an extended rally. You need to realize at this critically important time in our history that out of the depths of the depression, social mood turned and we rallied from 1932-37. You also need to realize that after the December 74/January 75 bottom; the market went sideways for the rest of the decade despite another oil crisis and historically high interest rates. We don’t even need to bring up stagflation or the misery index. What you should take from this discussion is there will be a change in social mood.
Our next order of business is the NASDAQ 262 trading day/377 calendar day window hitting the entire week. Thus far, we’ve had pivots on every single turn window I’ve brought to your attention since the end of September. The highest probability dates are Tuesday and Wednesday but it can hit early.
Our last time window gave us an eight-day rally where one of the highlights was the biggest day in Dow history. That portion ended with the election. We might have followed up that big Dow day with the worst two day plunge in history but it was unremarkable as far as I’m concerned because all the charts basically hit a 61% retracement off the Oct. 24 low. We have no intermarket divergences or leadership to the downside. Everything is moving together. I’d prefer to see tech lead like it did two weeks ago. We did have a better close on Friday, but it doesn’t guarantee anything in a market that can be up 500 one day and give it all back the next. The one calculation coming out of Friday’s reversal was the BKX materialized 146 hours off the Oct. 10 low. It is possible the BKX has just completed a bullish flat pattern. If the low holds, it will be the second time the banking sector would have retested and set a higher low. But the best I can tell you is we would once again be led by banking and not technology. Every time we’ve had a rally led by banking, its led to a new low in technology. Since they declined together last week, let’s see if technology can keep up. If we see no NASDAQ lag on Monday, we could be taking off right here.
We do have this wide turn window developing here so it is possible we could get one more test of lows or important Fibonacci support areas since the prior lows. Coming into the week, Monday does mark 376 calendar days so the window starts immediately. Asian markets were off to a good start so this 61% retracement across the board can be what I’m looking for. It’s tricky so we’ll have to see how it develops. You want to also pay close attention to currencies and as of Sunday night the Euro was gaining against the Dollar. If that relationship holds, we should rally and so should commodities.
This might finally be the week I can give you a green light. This is our last important window on a daily time frame that links back to the 2007 top. We are also in the seasonal time of year where rallies can materialize. Finally, this might be the time of year where the Santa Claus rally develops. There is no rule that says the Santa Claus rally has to come at Christmas time. Last year it kicked in at the end of November and peaked by Dec. 12. You will also see that tech pulled back but retested the December high right at the end of the year and never took it out. Believe it or not, we are already coming to the middle of November. The more they talk about how lousy the holiday retail season should be (all true), the better the chances for a Santa Claus rally. We may not get a big one this year, but anything will be preferable to the September to remember and October to forget.
Since it is the middle of November, its time for those of you out West to come to the Mandalay Bay next week for the annual Traders Expo. My session is Friday morning at 8 AM on Nov. 21. I love both the New York and Vegas conventions. But let’s face it, the mood in Las Vegas is always festive and it’s a good time of year to go there. If you look around the Internet, you’ll see some incredible bargains on hotels. I’ve been going to Las Vegas for 30 years and have never seen the kind of rates being advertised now. The great thing about Vegas is you can still hop in your car in the last minute and get there within 8 hours from many areas of the West.