1. Moving the markets

If you were looking for wild and whacky market behavior, look no further, you found it today. Not only were futures up across the board, including gold, and led by the technology sector, things reversed once the regular session opened.

With the Dow being up some 1,500 points, and losing almost half of it by day’s end, the overnight leader, the Nasdaq, hit the skids and ended down some -1.5%. Despite a dive into the close, the Dow and S&P 500 managed to hang on to now sharply reduced gains.

You could almost think about it as “opposite” day. Consider that some sectors (not tech) rallied in the face of sharply rising bond yields with the 10-year (not shown) now in striking distance of the 1% level. The 20-year bond ETF TLT dropped -2.23% and looked like a penny stock.

The US dollar index rallied sharply thereby pulling the rug out from gold’s recent gains and sending the precious metal back below the $1,900 level.

Causing the relentless surge in equities, in the face of rising bond yields, were indications by drug makers Pfizer and BioNTech that their Covid-19 vaccine is more than 90% effective.

Added CNBC:

The 90% effective rate from Pfizer and Germany’s BioNTech was better than what the market was expecting. Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, has said that a vaccine that was 50% to 60% effective would be acceptable.

Of course, hope suddenly reigns supreme about getting the old life back, at some point in the future, returning to normal, people going back outside, the economy reopening, and masks being ditched.

Who knows what the reality will look like and if the above drug maker announcements really have merit?

Technically speaking, it will now be interesting to see what happens to the S&P 500, which has reached the top end of its wide megaphone pattern, as Bloomberg demonstrates in this chart. Breakout or retracement, that is the big question.  

1. Moving the markets

The “buy everything” mantra continued today extending the election week rally on beliefs that the current dilemma might result in a divided government, with the powers of the president/congress being offset by the opposing party controlling the senate.

The bullish reaction to the results so far “may have been due to the fact that Republicans appear likely to retain a majority in the Senate, something that will make it hard for Biden to proceed with the tax increases and stricter regulations he promised,” said Charalambos Pissouros, senior market analyst at JFD Group, in a note.

Even though analysts had originally claimed that a “blue wave” sweep of the White House and the congress was being priced in the market, when, suddenly the possibility of a split government seemed “market pleasing” giving power to the bullish cause.

Despite the WH outcome far from being certain, traders are confident that much of the election uncertainty has passed, and the worst possible outcomes seem to have been avoided. At least for the moment, this viewpoint prevails, yet it could change in a hurry.

ZH added this succinct spot-on tweet:

A disputed election is bad for stocks

Legislative gridlock is bad for stocks.

But the combination of the two is great for stocks

In the end, stocks soared led by the Nasdaq, bond yields tanked, and the US dollar got clobbered. The combination of lower bond yields and a declining dollar was like pouring fuel on the fire for gold, which ripped higher with spot gold actually outperforming the major indexes for the session.

Of course, as great as this rally feels, we must be aware that much is hype and not based on economic fundamentals, as this separation of “soft” vs. “hard” survey data shows. Additionally, the SMART money is not participating at all, and has not since August, which is demonstrated in this chart.   

That’s why our exit strategy will always be an ever-present component of our Trend Tracking strategy.

1. Moving the markets

The future markets engaged in a wild roller coaster ride, as election odds shifted from one contender to the other and back. As expected, no winner was declared with skepticism over the outcome remaining, but there appeared to be no doubt that the Senate would remain in Republican hands, which crushed hopes for a Blue Wave.

“I think the big news for the markets right now at least as it looks preliminary is that there’s not going to be a blue wave, which is generally supportive for markets,” said Mike Lewis, managing director of U.S. equity cash trading at Barclays, on CNBC’s “Squawk Box.” “I think that the outlook going forward for markets is this is going to be more about policy and the Fed than it’s going to be about politics, which is a good thing for markets.”

None of that early volatility was present during regular session, as the bullish theme prevailed, despite the White House race heading into extra innings. Equites went straight up with the Nasdaq reaching its daily limit causing the exchange to pause for a few minutes. I took advantage during a lull to increase our equity exposure in the tech sector, which had been beaten up more than any other during the October debacle.

In the meantime, both contenders exchanged verbal blows as to who had won the election, adding again to uncertainty, however, the markets were not affected by the rhetoric.

Wild swings were seen in many areas, such as the US Dollar, 30-year bond yields, as well as gold, which managed to crawl back above $1,900 after an extremely volatile 12 hour period.

Even professional traders were flabbergasted as to where this market might go, causing ZH to publish this spot-on headline:

“Frazzled Traders Turn To Booze, Tear Up The Script And Just Buy Everything”

That pretty much sums up today’s sentiment. With no WH election decision on the horizon, who knows what’s in store for tomorrow.