Let the Games Begin

Last Friday finished at all-time highs for the SPX. Today, Futures look to open flat. Tech giants continue to drive this market higher. The rest of the market may even be starting to gain a bid. But there’s an elephant (and a donkey) in the middle of the room: the election.

A lot of folks are betting the future of this market on the election.

It’s tricky, because on one hand, things like tax policy and the idea of being ‘business friendly’ look so vastly different on paper. On the other hand, both parties seem to spend more than we have, make promises they can’t keep, or generally point fingers at the other team only to do the exact same thing they cry foul for when it’s their turn. So perhaps it’s less different than many care to admit.

Regardless, the reality is the election is two months away, and market participants are very interested in the outcome. It’s a classic backdrop for volatility.

Currently volatility has been on the decline and seems relatively benign. We’ll see if September’s historic reputation of being a challenging month for the markets lives up to the hype.

For now, the technical picture remains mixed: a strong uptrend that appears to be continuing, with an odds-beating sequence of positive returns that begs for mean reversion.

Since we’re already at all-time highs there really isn’t ‘resistance’ for the markets to the up-side. There’s just a general trend that continues. And that trend extends up near 3450 for the S&P 500.

Support is a slightly different game. At all time highs, we can look backwards in time for key areas the market once challenged. In this case, the stand-out support area appears to be the previous February high-water mark at 3393.

Markets are pretty tricky to call when they’re achieving all-time highs. The temptation is to believe they must fail first. This need not be the case though. In spite of all the chaos and theories that this market must go down before it can go up, markets can rise to even-all-time-higher levels from here.

The critical question to ask is: where does the money go if it’s not in the market? And are folks willing to sit on the sidelines and watch things go higher?

Mechanically speaking, markets can rise on thin volume (in some cases easier than on high volume). So a rising market does not need a lot of believers; it just needs more buyers than sellers. And since the Fed has made most everything else pretty unattractive to buy, you can do the math.

So as we send off August, send the kids back to school (or do we???), look forward to an election, and the upcoming holiday season, we’ll see how things evolve. So far, the market is not forecasting its own demise. But we’ll see if the fears of would-be-stock-buyers manifest in a self-fulfilling prophecy of bear stampedes… or not.


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