Of course, Mo is short for Momentum and something on full display both before and after the election, until Friday when it suddenly ended, as if it ran into a brick wall. The Market Review below includes one possible answer found by a data dive. Then, the results of last week's Invesco QQQ Trust (QQQ) Iron Condor.

S&P 500 Index (SPX) 3509.44 rebounded 239.48 points or +7.32% last week gaining every day except Friday. The largest advance came on Wednesday when it gapped up on the opening and then closed 74.28 points or +2.20% in one day. Now well above the 50-day Moving Average at 3400.77 that forms a support zone on any unexpected pullback.

Invesco QQQ Trust (QQQ), 294.61, called "the decider," for good reason as it gained 25.23 points or +9.37% last week after making gap up openings on both Wednesday and Thursday. The election results quickly boosted sentiment as chances for a "Blue Wave" seemed diminished. Although the final election results remained uncertain at the end of the week, the markets voted in favor of a divided Congress. The 50-day Moving Average at 280.49 will likely provide support in the event of an unexpected pullback.

CBOE Volatility Index® (VIX) 24.86 dropped 13.16 points or -34.61% last week. Our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, slid 12.48 points or -37.36%, ending at 20.91%, regressing to the mean since the start of September. Most of the decline occurred on Wednesday as the major indexes and all the related derivatives moved dramatically higher as hedges began closing. By Friday higher option prices before the election round-tripped.

The IVXM and SPX charts follow.

This next chart shows the spread between the VIX 30-day options and the VXST 9-day options advanced all the way back up to positive .90 from starting the week at -6.73. Another encouraging sign for the bulls since a positive spread is normal. 

For another go signal at the end of last week, the Equity Only Put/Call ratio started the week at .62, ended at .41, and likely reflects more than unwinding of hedge positions that would be included in the put volume counts. Now back into bullish territory or near another sell signal from a contrarian perspective that has not been working very well since July. This one gives a go signal when it quickly drops lower again as put volume declines. 

VIX Futures Term Structure 

The term structure chart from our friends at vixcentral.com shows another unusual hump, this time in January at 27.49. As the VIX now 24.86 in green below declined last week the futures also declined, but by Friday the January futures remained relatively elevated creating the hump with only slight changes in volume and open interest.

The term structure suggests a willingness to hold or pay more for January futures. Since the January hump suddenly appeared on Friday, the most likely reason relates to the Georgia Senate runoff elections scheduled for Tuesday, January 5 that puts the Senate majority at risk and renews "Blue Wave" concerns. 

VIX Futures Premium

This next chart shows as our calculation of Larry McMillan’s day-weighted average between the first and second-month futures contracts as of last Friday.

With 7 trading days until November expiration, the day-weighted premium between November and December allocated 35% to November and 65% to December for a premium of 6.55% back in the neutral zone vs. -11.24% on October 30. As an indicator, the premium could lose some importance since the VIX will likely remain somewhat elevated until after January 5.

Since most of the volume and open interest are in the two closest futures contracts measuring the day-weighted premium relative to the standard 30-day VIX provides a good real-time sentiment indicator based upon actual commitments of large Asset Managers and Leveraged Funds. 

Setting the Stage

Market Breadth as measured by our preferred gauge, the NYSE ratio adjusted Summation Index that considers the number of issues traded, and reported by McClellan Financial Publications, gained 55.75  points or +65.63% last week ending at 140.70. After declining down to 58.71 last Monday before the election, it turned up Tuesday gaining 8.19 points. Now still below both the 200-day and 50-day Moving Averages this important indicator deserves close attention as political risk seems back again.

Iron Condor Report

Last week's Iron Condor trade plan idea in Digest Issue 44"Hedge Report & Iron Condors [Charts]" for Invesco QQQ Trust (QQQ) greatly underestimated the elastic-like snapback potential of both QQQ and SPX. After just three days, QQQ closed last Wednesday at 286.91 up 12.26 for the day and above the upper stop limit for the short call spread. Closing this leg booked for 3.65, while leaving the put side in place resulted in a total book loss of .89 since the initial credits totaled 2.76.

In hindsight, the short call could have been further out-of-the-money since the QQQ has an upside bias but that would have booked a lower initial credit. This trade plan picked the wrong horse for this ride as QQQ exploded higher and quickly exceeded the upper boundary.

Strategy

Until Friday, the SPX and QQQ strategy plan copied some recent issues:

1. Attempt to form a double top or
2. Exceed the previous high, and start forming a potential H&S Top pattern or
3. Resume the long-term uptrend. 

Now with extended political uncertainty and a greater chance for the "Blue Wave," again hedging some portion of any existing long risk seems like a better alternative than new longs. 

Summary

Before last Tuesday's election both the S&P 500 Index and the Invesco Trust QQQ, called "the decider" began advancing and then accelerated when markets realized divided government reduces the chances for a so-called "Blue Wave". However, upside momentum ended when Georgia announced the need to rerun elections for both Senate seats scheduled for January 5, with the potential to change control of the Senate thereby renewing "Blue Wave" concerns. The sentiment change appeared in January VIX futures contracts creating another abnormal hump in the curve.