Market Briefing For Thursday, Nov. 1

Aggressive upside on the anticipated S&P move above a 'declining-tops' pattern, assisted by strength in the FANG stocks (and GM) as pension-fund re-balancing started to kick in; the seasonal flows are evident in some stocks; and some buybacks resuming since 'blackout' periods end, as we get through the majority of earnings reporting season.  

Now it's all not so glorious as many presume. While the month finished on a favorable note; part of this is the 'automatic rally' aspect of both a washout in a wild Monday; an expected 'inside-day' Tuesday consolidation; and while quickly dismissed, certain other issues that ultimate weigh on equity prices.  

  

Among those are the lower guidance many have as they look deeper into a forthcoming 2019. The market to a degree already discounted 2019 with the preceding expected decline (all year in many stocks; the last two months for the FANG issues which are rebounding). A lot comes to a head next year; of course the tax-cut benefits are recognized as discounted by the market; but it's tricky because one does not know how 'politics' will impinge on that area.

If the economy remains strong (more growth envisioned); that's also going to point towards 'higher rates' and that's another form of pressure. While for sure lower rates (if things turn more sour) do not ensure 'all clear' for stocks either; since at these overall higher Index levels, you need profitability too.  

It's not just a bifurcated market; it's an impossible one to accurately divine in the intermediate term, because of the 'known unknowns'. What we've done (and I think that's about all one can do at this point) is properly guide along the way of the 'rolling correction' or 'rolling bear' 'Rinse & Repeat' saga that's prevailed for so many months; and then the 'crash alert' for FANG and S&P in late September and October 2-3; actually at the Dow and S&P high (that's not the point, because we forewarned how bifurcated this all had been). 

Hammerheads  

What we have addressed going forward is how some 'outcomes' (whether it is China trade & tariffs or the Midterm Elections or rates impacting Housing, which continues to contract regardless of any reports suggesting otherwise) will evolve. An example is the 'perception' of growth if we get a China deal; or 'if' you don't have a Blue Wave coming right up.  

Of course the contrary is you 'do' get the Blue Wave, and whether any of us see that as better or worse for the Nation; 'business' is unlikely to welcome it with open arms. Plus trepidation's about how a Democrat House shifts right away to 'attack mode', and hammers on the heads of probably each one of the Administration's department heads and policies.  

Again not saying that's valid or not; but it's sure going to be decisive again and problematic for the market. Like it or not the 'new' Chairpersons will be coming at the Administration, like a hammerhead shark goes after its prey.  

  

And speaking of prey; I commented this morning (to our intraday members) a bit about the notable invisibility not only of Special Prosecutor Mueller but of Rudy Giuliani from the public eye during the lead-up to the Midterms. This 'may' suggest they've been infighting (or sparring lightly) about whether they will be subpoenaing the President to appear before a Grand Jury; or at least agree to a broader interview / testimony than they've acknowledged so far.  

In sum: the market's snap-back is absolutely orthodox and tries to give just enough 'cushion' above the S&P declining-tops 'so as' to allow a pullback in the days ahead to be 'contained' without challenging the preceding low(s).  

Of course whether a secondary test of that low (or just the breakout point of the trend-line as I've denoted for days) is successful may well be influenced by the Midterm Election outcome; hence that's part of why even this shorter term framework is going to be tricky. 

Overall we should not be 'out of the woods' at what are still high levels from an Index perspective; with respect for seasonal factors and understanding, in a technical sense, why they are trying to maintain S&P 'space' above the challenging levels, which (depending on variables) do invite revisiting. That can be regardless of 'comforting' talk about 'always rallying' after votes.  

Conclusion: it looks constructive in terms of late-year rallies that historically follow Midterms; and I've acknowledged that days ago. However, a (slightly cynical) problem with the future, is that ITS history isn't written yet.   

If there's anything to be deduced from the current contentious politics (risks impacting far more than just markets) it's that any 'market technician' or bull manager who simplifies this into 'Farmer's Almanac' stuff about year-end lifts, is dismissing the significant social, financial, fiscal and even geopolitical shift that can (but may not) occur as the result of the upcoming vote.