Market Briefing for November 8, 2016

Daily action staged a massive 'Clinton relief rally', perhaps not based on any embrace of her policies, but rather the removal of the impediment related to the FBI's investigation (keeping in mind they didn't say nothing is out of the ordinary, just that based on the further review there's not any change to their original posture), which if one recognizes for many voters this isn't about the email, but rather the underlying issues being masked.
 

Between the late pre-Election surprise unloading an instant return to risk-on sentiment from Director Comey's Sunday bombshell, there was little for a trader to do in this environment (gapping-up S&P instantly; then holding it lateral in overnight / pre-opening trade, leading into most of the regular S&P session meandering around higher levels). Is this resolved? Hardly.

This suggests few minds were changed, making this lots more of a Wall Street than Main Street market drama. Amidst the chaos of course, there was nothing S&P traders could do since there was huge relief by a (known) pro-Clinton market, and grief from shorts who couldn't do much of anything for the moment, especially last night and the early thrust. The post-close activity (during which S&P's continue to trade for 15 minutes) saw the Futures jammed to higher highs, continuing the lockout.

This has to be primarily technical, as nothing really changed opinions you would think; although it did suggest if Hillary wins, there won't be any sort of witch-hunt between the Election and Inauguration. Bewildering, yes. Is it decisive? No. Now of course Bulls will try to rationalize a higher market 'no matter who' wins, and just like 'doom & gloom' guys were paraded Friday, today the 'perennial bulls' were trotted-out. My view is that most outcomes (especially with a moribund Congress) settle-out in a 'gray' rather than black or white area.

So you alleviate some fear (again perhaps foreign holders more than our own) of turning policy upside down with a Trump win, but even he would not actually do that; it's about different department heads and negotiating trade deals and so on.

David Tepper's remarks about how lacking in any charitable contributions after Hurricane Sandy ring true, but it's already a realization that Trump was mostly about Trump and not generous towards others. Again his supporters don't seem to have illusions about his generosity, but rather focus on the 'drain the swamp' / jobs restoration and creation mantra. At the outside of this I have believed even Clinton's forward initiatives will take into account some of these concerns, since it's impossible for her to dismiss a message from Bernie Sanders supporters even as she disdains Mr. Trump. She'd be more centrist than Obama.

Of course at this point it's up in the air; and we'd have to suspect limited upside (one huge gasp sold into) if she wins; and a dramatic reversal yet again if Trump squeaks in. And if it's so close to call that challenges are invoked, then you have trading chaos which really won't please anyone.

Against this backdrop the Oil and Dollar moves are noted, while more data reinforces the idea of a Recession forthcoming (we think dating to more or less this past July). Consumer Credit expanded to record highs, as did Student Loans concurrently, without any commensurate increase in discretionary spending. This is not indicative of recovery.

So nothing in the background changed other than what appears to be everything, but isn't. Meaning we were ruffled at the edges fundamentally for weeks and months, and still are. We got oversold and that rapidly has been reversed. We saw excessive premium levels (I mentioned that late last week) on VIX Calls and S&P Puts; a sign that the next move might be other than a continuation (not just because we had 9 days down in a row). In fact I speculated about going long after the Vote for a Brexit-like rebound. The problem of course is they pulled that off starting Sunday, in essence negating that prospect; perhaps even setting-up the opposite.

For now we're short Dec. S&P from 2167 and I did initiate a 2137 fixed mental stop guideline realizing that it would protect an official 30 handles of any remaining short position. I also commented that we've had that so long that most traders are either partially short, not short at all, or varying levels (although likely already out because of Monday).

So if, as may be likely, that level comes out Tuesday morning we will be looking to fade Dec. S&P again; but we'll simply make it a new guideline, essentially retiring the old multi-week one. I know I suggested it might become a position posture in a prior comment, but no, because there's been too much market action in both directions (last week and Sunday and Monday), so we'll make it new if of course it comes out. And it would be probably a speculative hedge to have some protection against this for any reason being an historic round-trip multi-leg down-up-down-up-down phase (including last week's break below lower supports; and now we're back to the middle of the preceding resistance / congestion zone).