1. Moving the markets

There was not much follow through from yesterday’s massive rally, but there was not much of a sell-off either, meaning that our new domestic “Buy” took effect today. We got our feet wet with some conservative exposure to “broadly diversified domestic ETFs,” while acknowledging that at any time momentum could turn around and head back the other way.

The danger of a such a head fake is always the greatest at the beginning of a new cycle where bulls and bears are still engaged in a tug-of-war. Such was the case today, as the Dow ventured above the unchanged line, although not very convincingly, while the S&P 500 and Nasdaq hovered below theirs leaving us with a mixed picture at the end of the session.

The Fed came out and did what was expected, namely not hiking rates this month but indicating that an increase will likely be in the cards for December. Market reaction was muted but some analysts, dissecting the Fed’s statement, saw hawkishness in their remarks, which contributed to the major indexes slumping.

The US dollar index was the beneficiary and popped while continuing its rise off yesterday’s bottom. Crude oil sank for the 9^th day in a row and is now entrenched in a bear market, down -21.25% from October highs to 7-month lows. If it drops another day to 10 in a row, it will a dubious record in that this would represent the first time in 33 years of futures trading. Ouch!

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1. Moving the markets

Right out of the starting gates, bullish momentum ruled, and the major indexes staged an impressive come-back rally. With the results of the elections confirming a political gridlock, you may be wondering why that would be a good thing for stocks.

The Daily Bell provided this answer:

Republicans expanded their majority in the Senate, and Democrats took the House.

Surely this will cause more gridlock. Less will get done. Fewer bills will pass. Each side’s agenda will be watered down.

And that is about the best results we could hope for.

The less that gets done the better. For everyone.

Calvin Coolidge was the last President to understand this… or at least to care.

Every President tries to leave his mark on the country. But usually, it is a blemish.

President from 1923-1929, Calvin Coolidge said, “It is much more important to kill bad bills than to pass good ones.”

Apparently, the computer algos were programmed this way and pushed the markets out of their doldrums, however, on low volume. Whether this will turn into the anticipated year-end rally remains to be seen.

However, this morning, during the early stages of the rebound, our Domestic Trend Tracking Index (TTI) crossed above its long-term trend line into bullish territory. I took the opportunity to start moving a portion of clients’ assets back into equities. Usually, my action point is generated after the close, but the handwriting of a huge move was apparent. This gave us a head start on what might be a return to the bullish theme.

By the end of the day, this turned out to be the correct decision, as our Domestic TTI raced ahead and triggered a new “Buy” effective tomorrow, unless a huge correction is in the making. Absent of that, I will cautiously proceed with adding to our current holdings.

The Fed is due out tomorrow to give a verdict on interest rates. While a hike is assumed for December, none is expected tomorrow. Should that expectation turn out to be false hope, markets will likely head south and give back today’s gains.

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1. Moving the markets

With most of the mid-term election results being on deck later tonight, it came as no surprise that the markets meandered, but with a bullish bias, as all 3 major indexes closed in the green with last minute buying helping the bullish cause, although on ultra-low volume (60% below average).

Polls and forecasts occupied the headlines where opinions varied widely ranging from “what happened to equities after every midterm” to “a healthy 30%-plus correction headed for stocks.” Of course, someone is bound to be dead wrong when you consider totally opposing views.

One investment firm summed the current scenario up this way:

“It is definitely not the time to buy the dip,” said London & Capital’s CIO Pau Morilla-Giner. “Everything that could go well for U.S. consumers in the last couple of years has gone well, but now the tide is turning… At the moment, you are running out of drivers of growth in the U.S.”

I agree with this assessment but will add that momentum can turn quickly even in the face of slowing fundamentals. There could be a relief rally in store, so we need to be prepared to jump back in should our Domestic TTI (section 3) crosses back above its long-term trend line. As of today, we are only -0.41% away from a new “Buy” Signal.

On the other hand, the Fed will make his announcement regarding interest rates tomorrow around noon which, depending on the outcome, could wreak havoc with the markets. It promises to be an interesting next few days.

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