The song remains the same again this morning as the stock market indices continue to be pushed and pulled by the status of stimulus talks. While past and present Fed officials continue to pound the table publicly about the need for additional fiscal stimulus (this time, more targeted, of course), the reality of the situation is it appears that politics are the priority in Washington.
Although the polls indicate that the vast majority of Americans have already (a) made up their minds about the Presidential election and who they want to represent them in the senate, and (b) begun casting their ballots in a big way (a new poll shows 38% have already voted), it looks to me that the powers that be in D.C. continue to pander to their respective bases. So... The logic seems to be that we aren't going to see anything other than perhaps a "skinny" stimulus bill before the election.
The good news is that Wall Street seems to believe that a Biden win will bring more meaningful stimulus to the table. And if there is indeed a blue wave after the election, the stimulus could happen fast. And from my seat, this is why the S&P 500 remains perched above near-term support levels.
Next, let's take a look at what our Early Warning indicator board tells us about the near-term outlook...
The State of the "Early Warning" Indicators
The Early Warning board remains neutral. Stocks are neither overbought nor oversold from both the short- and intermediate-term perspectives, the VIX indicators are mixed, and our three sentiment models sport one buy signal, one sell signal, and a hold. Can you say no-man's land? My takeaway is that since the bulls were in control of the ball before the recent pullback began and there does not appear to be any table-pounding negatives or any real mean reversion tailwinds, the bulls deserve the benefit of doubt in the near-term.
* Source: Ned Davis Research (NDR) as of the date of publication. Historical returns are hypothetical average annual performances calculated by NDR. Past performances do not guarantee future results or profitability - NOT INDIVIDUAL INVESTMENT ADVICE.
Stochastic Review
As you can see on the chart below, the stochastics and the current pricing for the S&P are both in neutral territory. The overbought condition on the stochastics has been "worked off" and the reading us now neutral. So, for me, the question of the day is if the bears will be able to produce some additional downside exploration - creating an oversold condition in the process - or if the current consolidation will be enough to set up the next leg higher. To be clear, I believe there will be another leg higher as (a) the election uncertainty will recede and (b) we appear to be getting closer to a vaccine (which will allow traders to discount a return to "normal" in the next 12 months). However, both outcomes require time to pass. Thus, I think a healthy dose of patience remains appropriate here.
S&P 500 - Daily
(Click on image to enlarge)
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