TSP Talk Blog

11/07/12

Stocks rallied strongly yesterday, election day, and it brought up a lot of questions and rumors. By the close the Dow had gained 133-points and most indices saw gains over 1%.

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The S&P 500 tried for a second time to move above the horizontal resistance line, and it did, but it could not hold that into the close, although it did close above the 20 and 50-day EMA.


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The Transportation Index is pushing up toward the top of its recent trading range again, closing at its highest point since September, and the 50-day EMA is about to move back above the 200-day EMA.


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The small caps of the Russell 2000 remains in a downtrend but it is now testing the upper end of the descending trading channel. Its always tough to bet against the trend so the small caps will have to move above that resistance line if the market in general is going to end its pullback.


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Looking at the put/call ratios, the smart money had been getting quite bullish while the dumb money got much more bearish. Being a contrarian indicator, the dumb money had the indicator leaning toward a bounce in stocks and with the smart money looking for a bounce, yesterday's rally was about right. Should this be as strong as it looks, we might expect an even stronger move higher, but will the election results, which are still up in the air as I write this, change things?


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

As I write this, it looks like a strong night for the democrats as they hold onto the Senate, which was not a given, and Romney is in a must win situation in a few swing states that are all close. I'm sure by the time most of you read this we'll be closer to a result in the presidential race, but I see the futures down sharply (Dow down > 100-points) so it looks like a sell the news reaction could be coming.

Update: It looks like the negative futures was a result of the very close elections in Ohio and Florida and as we talked about before, the market was concerned about continued uncertainty, worried that a winner may not be declared on Tuesday night. However, things turned around after Ohio was called for Obama and it was clear that we had a winner. As of now (4:14 AM ET) the futures are back to flat to slightly up.

Update 2: And now they are down again, so it looks like volatility is the game.

Thanks for reading! We'll see you back here tomorrow.

Tom Crowley


Posted daily at TSP Talk Market Commentary

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