Stocks Rally While The Dollar Slumps

Yesterday, the contentious U.S. Presidential election concluded with Joe Biden declared the victor by the Associated Press. Trump’s legal team is pressing on to disallow many mail in ballots across key battleground states to keep the presidency, but the oddsmakers in England say that Biden will assume the job and Trump's legal efforts will ultimately fail.

However, the expectation of a change in U.S. leadership, the prospects of no change in the Senate, and ultimately a stable, “not-much-change,” government fueled the market higher and “lifted all boats." With the dollar under pressure, it appears that the global reflation trade is on, and all asset prices (especially housing) are the beneficiaries of this new direction under a changing and evolving government.

The highlights of this week’s market action include the following:

• Risk gauges reversed direction and closed positive, with equities having their strongest week since April.
• The Dow Industrials (DIA) bounced off its 200 DMA from oversold levels, but remained the weakest U.S. equity index.
• Volume patterns on the four key U.S. equity benchmarks improved marginally.
• The dollar sold off at a hard -1.89% for the week. The longer-term trend is under pressure, trading under its 200-week moving average, which is good for hard assets.
• Gold miners, gold, and silver all broke out above key moving averages and their pennant /wedge formations (benefiting from the dollar, as noted above).
• The McClellan Oscillator reversed the oversold conditions we highlighted last week and it is now a bit extended to the upside.
• U.S. Bonds (TLT) failed at around 200 DMA and has major issues with the potential head-and-shoulders pattern continuing to play out.
• Small and mid-caps now have the strongest TSI (Trend Strength Indicator) despite yearly underperformance.
• Emerging Markets, especially countries in Latin America, continue to lead, but running a bit rich in the short-term.
• Growth stocks led by Tech plays took the lead once again over Value.
• Crypto Currencies roared, with Bitcoin up over 50% since early October.
• Clean Energy, with ETFs like TAN, perked up given the expectations of a Biden win.

Markets loved the fact that the election came to a close with little violence or social unrest. Assuming that a peaceful transition occurs with electoral votes being certified on December 8, western democracy will have survived. However, considering that the dollar tanked this week, long bonds sank, and precious metals and cryptos roared, it is hard to call what is next for the markets.

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