Dynamics that impact markets may seem to be in-flux as a majority of pundits or analysts opine that if not for the political uncertainty taking on a circus-like quality, things would somehow be more stable. Perhaps on a daily basis, but otherwise that's hardly the case.
The stock market has been meandering closer and closer to a break of 2100 for weeks; a reason why we felt 'the Street' had enough leverage to bail it out really on multiple occasions, but only briefly with no chance of sustainability. We believed this market would not survive this week with the S&P 2100 level intact, and it has not. We also (for weeks) have outlined how the pattern would evolve; initially with a test, then break of 2100, followed by a rebound as frantic traders recognized after-the-fact what was happened, and then a resumption of declining behavior.
Labeling this as beyond a 'market doesn't like uncertainty' situation we do realize most analysts don't want to face the reality their fundamental or technical underlying bullishness had no validity (whether due to Fed tapering to be followed by a rate hike) or GDP or earnings growth. They try to tell us that an earnings recession is reversed, but it's hard to see it even if one allows for every adjustment imaginable. That doesn't mean everything is terrible; it does mean stocks were (and still are) extended due to overvaluation and the absence of 'props' previously sustaining it.
Certainly, there is no doubt that the topsy-turvey political chaos for now is overshadowing economic analysis, as it is blamed as a catalyst for a market decline in what they say would 'otherwise' be a strong seasonal time; but actually that's not so. We've had a historically narrow trading pattern in September and October, and strong early November's often come after significant weakness in the preceding weeks, not in-lieu of.
In this case, of course you may get relief rallies interrupting an accelerating decline (at the normal time on a trigger point break technical). Perhaps it was initially due as much to Iraq threatening NATO member Turkey with a 'war' if Ankara doesn't withdraw tanks entering Iraqi territory and that's related to Turkey wanting to attack the Kurds (within whose forces are embedded US Advisors) under the guise of joining-in on liberating a beleaguered city of Mosul. So focused on politics, few noticed this.
A few might have noticed new Wikileaks releases; this time once again Podesta's emails about dumping emails; problematic given all the denial stories. And later today FOIA release (yes by the FBI) of records related to President Clinton's pardon of then-fugitive financier Marc Rich and it turns out, the Clinton Foundation (heavily redacted and I won't react to it at all). I will say that all of this controversy, despite Clinton campaign's efforts to try to equate them to Trump tax avoidance (which isn't evasion of course) or dragging-up claims about Russian connections really has no traction, whereas given the years of Washington insider revelations; it is impacting the sentiments towards Clinton, as the polls reflect.
Note that these emails involved Cherly Mills, who already had received FBI immunity for cooperating. There are now 5 separate investigations in various stages related to the Clinton group and/or related matters; an astonishing fact that London's Daily Mail points out creates uncertainty. All of these sort of give ammunition to the 'drain the swamp' idea, which many in the Sanders campaign trumpeted as a Democratic goal too.
We'll not opine on anything other than the impact on Elections, and my own view that the market has problems, regardless of next week's vote. Right now, you'd hardly know there was a Fed Meeting going on, and of course 100% of respondents believe there is zero chance of action now. Perhaps so, but if they're not even considering things, why a meeting?
Even with the assumption that everyone expects it in December, that's still not that far off, and markets discount in advance. This market from our perspective has been recognizing the trend shift for months; and for the economy at least from early-mid July as we consistently have said.
Power-play? Russia went after Microsoft today, seeking to expand the ban on Windows and Office.
Notably Moscow is believed to have hit the US with an attachment to Office months ago, so they know a lot about the sensitivities of the Operating System (contrasted to a MAC system, for instance, which is UNIX based thus can have penetration but not a system of executable files so easily as can be done in Windows, a part of why many officials and executives, including IT personnel, may work in a Windows environment, but their personal computers are MACS).
This escalation from Putin did not just start today; last week he banned LinkedIn, which Microsoft is in the process of buying. I suspect part is a desire to insulate Russians from Western influences; not just part of his paranoia about the West or NATO. It also consolidates power. Similarly his media very cleverly sows the seeds of discord in the West (Europe, and Great Britain, not just America) and presents some global stories in a superficial way more straight-forward than most US media outlets. Of course there's a propaganda (and confidence building) aspect to this; a reason why several anchors, international RT (Russia Today) and other, reporters resigned this year. They came forward to call it propaganda. In the U.S. some major news stories are just dumbed-down or omitted. In the past couple days Malaysia, not just the Philippines, made overtures to China or talked about buying Russia arms. Hear about it in the U.S.?
In this case further concern may be the internationalized internet control we opposed that has now taken place and Russia's isolating it's nation in a form of 'intranet', both restricting data flowing in and perhaps more importantly, coming out. Major media mentions tensions rising between the U.S. and Russia, what they don't mention is Russia 'urging' families to recall relatives and students from abroad, saying they only need the education that 'Mother Russia' can provide. Judge this as one may, it's a troubling sign that goes beyond allegations of election interference etc. I also caution that Russia is trying to undermine not one campaign, even as there's no love lost for Hillary given the Balkans war in-particular on her watch at 'State', but the confidence of integrity in America's process of elections. The candidates are doing good enough jobs of obfuscating and embarrassing (yes you can attribute one of those to each I suppose this week); so that the US doesn't need Russia's help to be uncertain.
Trump has shown what he needed to (though hardly offsets a series of fiery nonsense) as he talked about cutting ties with what both of them having been doing: petty politics (his words). Then he moved to talk about overturning Obamacare and he didn't attack Clinton's email issues. He did call for dreaming and bold changes, perhaps what some believe comes a bit late, if on-message. Whether the pollsters are right or not NBC is now saying that Wisconsin and Pennsylvania are moving into the spotlights as pivotal battleground states. As his lead increases, it may be postulated that the market moves lower, though given what's out there, even a Clinton victory wouldn't please Wall Street that much, as there's now a question of ability to govern with this backdrop.
Most important is the market technical progress, and the anticipation as Oil-led preceding stabilization efforts at 50 were projected to give way.
Bottom-line: I see no reason to modify our stance; the market pattern is continuing to migrate in the expected direction, and that includes rallies off of breakdowns with a presumption that catching-traction becomes at this point 'even harder' than it has been recently. Tuesday's turnaround wasn't so hard, because they let the market respond more aggressively which brought in more sellers and short-sellers, setting-up a rebound as I strenuously noted likely, even if we got a late-day fade (we did a bit).
Conclusion: we simply hold short from Dec. S&P 2167 for weeks now since taking gains on the preceding 2180 short-sale guideline.
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