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Things you need to know:

  • Time to shake the branches to see who is in and who is out…
  • Dow breaks the 50 DMA and tests the 100 DMA
  • S&P and Nasdaq pierce their 50 DMA
  • The path of least resistance is still lower…
  • The Election remains the TOP concern –
  • Try the Rigatoni w/HOT Italian Sausage and Broccoli

Stocks got clobbered yesterday… the Dow began the day weaker as forecast by early morning futures… opening lower by about 300 pts – but then couldn’t find its footing… it continued to get weaker as 9:30 turned to 10 and 10 turned to 11 falling 1000 pts by 1:30 pm… before ‘recovering’ – and it wasn’t really that much of a recovery as the Dow ended the day down 650 pts or 2.3%. The S&P ended the day down 65 pts or 1.8% after teasing lower by 85 pts – the Nasdaq gave up 190 pts or 1.6% and the Russell gave up 35 pts or 2.1% and not to be left out of the beating – was the Dow Transports – they fell 275 pts or 2.3% after teasing with its all-time high only days ago. And the VIX (Fear Index) oh right – that shot up by 17% yesterday – another data point I suggested you be aware of…

Now look – the Dow not only broke the short term trendline – but it tested the intermediate term trendline… the S&P broke the short term and looks like it wants to test the intermediate trend line at 3300 (which I pointed out in yesterday’s note), the Nasdaq also broke the short term – but managed to hang on while the Russell kept its head above all trendlines… The VIX shot up and through trendline resistance which now put the September highs (38.60) in the bullseye… Which means stocks could go lower… Capisce?

Now we can talk all day long about what the trigger was (and trust me there are plenty of reasons) – Was it the resurging virus? (as so many will have you believe) Was it the Mark Meadows commentary on Sunday to CNN’s Jakey Tapper – that suggested the current administration ‘gave up’ on trying to control the virus and was instead focused on the therapeutics and vaccine? Was it the fact that Congress has abdicated their responsibility to the country and failed to pass another stimulus package? Is it the fact that American’s are flocking to the polls to vote early to make sure their voices are heard? Was it the idea that ‘election day’ may not turn out a winner for weeks? Was it the realization that a Biden win may turn into a Biden Sweep and then we would have to really consider what the implications of that really means? Was it the confirmation of now Supreme Court Justice Amy Coney Barrett? Was it the idea that now the Democrats have every intention of ‘expanding the court’ if there is a Biden win? (AOC wasted no time on Twitter – posting this tweet reminding the American public of their intentions – Representing NY 14th – Congressional District – “EXPAND THE COURT”)?

What WAS it???

No matter which reason you choose – you would be right – because there wasn’t just one reason – it continues to be the ‘mix’ that is causing the angst… I mean, look around – in one of my tweets yesterday I said:

“No One should be surprised by what’s happening today… and if you are – you have been living under a rock. The economy may be better but there are so many other issues that the mkt has to deal with. 3300 is a possible bottom… another 2% from here… but maybe not! Strap in.”

And that is not to cause panic or more angst – it is a realization that the market has been so artificially pumped up, that There Is No Alternative (TINA). It’s the realization that in 7 days this whole election ‘thing’ may NOT be over at all… leaving us in limbo as both sides ‘battle it out’ because IF this is a close election at all (for either side) we can expect the contra side to wage a battle. An Investopedia poll reveals that Americans are concerned about THE ELECTION, THE ELECTION AND THE ELECTION… and then what potentially happens after that. If there is a Trump win – many expect the far left to ‘create chaos’ and if there is a Biden win – others expect the far right to ‘create chaos’… and then what will be the response in either case? Who will respond? What will policy look like? What will happen to regulation? What industries will come under attack – Energy, Tech, Financials?

Interestingly – What they are not concerned about (or at least not primarily concerned about) is the virus… and while it is surging – it is not causing the same panic or the same number of deaths that it did in late winter/early spring.  Therapeutics and understanding have come a long way… and a vaccine or two – are within sight, the majority of the country are wearing masks and are very conscious of where they go, etc. Now that is not to say that the virus and the surge around the world is not part of what’s going on – of course it is… but was it the trigger alone? I say NO… all of those issues were the triggers – and while most of those will not price stocks in the long term – as discussed so many times in my note – it will price stocks in the short term… and therein lies the ‘present under the tree’ – but PATIENCE is a virtue… and yesterday’s mini meltdown isn’t over yet… unless of course the selloff yesterday causes Nancy to re-think her position and come to the table begging for a deal… which isn’t happening now… because Senate Republicans are no longer interested until they see what happens after next week… But remember – we can expect a quick snapback if it becomes clear that the Dems swept – Why? Because if they win big – then expect that they will pass a massive stimulus bill – something that has a $3 handle and not the $2 handle that they proposed weeks ago. But if the GOP holds the Senate (no matter who sleeps in the WH) there will be gridlock and the market will have to sort that out as well… but what you won’t get is the same ‘surge’ in prices as you would if the Dems sweep. So – it comes down to – Who do you think wins… and by how much?

As you would expect – every sector got slammed… with Energy getting hit the hardest – (think A Biden win) OK – you can also say that the virus is causing demand to decline – while that may be true – I think the move yesterday is more about what a Democratic administration will do to that industry (recall that both Biden and Harris have called for an end to FRACKING – but have suddenly changed their minds) – this is an industry that has helped America become energy independent and employs some 10 million Americans – never mind all of the ancillary jobs that depend on that industry… the XLE lost 3.6%! Right behind that was Basic Materials – XLB -2.5%, Financials – XLF -2.3%, Industrials – XLI -2.5%, Tech – XLK -2.17%, and as subsectors – Home builders (XHB) and Retailers (XRT) lost 3.25% and 2.55% respectively. Growth and Value names got equally hit as election concerns leave so many questions about who will benefit post the election.

This morning US futures are steady… Dow futures are up 86 pts, the S&P’s are up by 13 pts, the Nasdaq is ahead by 52 pts and the Russell is +3. The VIX is also holding steady… up slightly but not anything that is suggesting another down day for stocks… Lots of discussion on the TV, lots of analysts/strategists telling everyone to calm down… That this is just part of the process – and it is… which is why you shouldn’t overreact and make an emotional decision… that is always the wrong decision… the talk again this morning is about the virus… the lack of stimulus and the election… Why would you expect it to change? When you have a move like yesterday and you are a long term investor – it is usually better to let a day or two go by before making another decision – because it just needs time to play out… if you are a Robinhood day trader – go for it… whip it around, see how you do… jump in and jump out – have a party… the volatility is your friend… or at least provides the opportunity to trade for sub-pennies… Whatever!

European markets are under pressure again today over the virus (recall they don’t have any elections going on)… the UK now putting more cities on high alert, Russia admitting that they too are getting hit with a new surge joining Spain, France and Italy. In Germany – Chancellor Angie Merkel is warning her nation that Germany is on the verge of losing control… (and the Democrats think the US is the only nation that mishandled this crisis). British pharma giant AstraZeneca – announcing that their potential vaccine has been producing positive results in both younger and older patients… The questions across the region is – Will they go into lockdown mode again? The UK is also warning the EU (European Union) that time is running out for continued BREXIT talks and while earnings remain in play – the broader concerns are about the economic impact of the virus. At 6:30 European markets are all lower… the FTSE -0.33%, CAC 40 -1.07%, DAX -0.45%, EUROSTOXX -0.55%, SPAIN -0.35% and ITALY -0.57%.

Again – it is a big week for earnings – tech in focus… so there will lots to discuss… I fully expect tech names to outperform – I don’t see how they can disappoint at all… but what the market does depends on what’s happening all around them… Remember – a SALE is a SALE… and SALES are good as long as the SALE is not being driven by a significant change in fundamentals… Capisce?

Oil – is UP 1.3% after yesterday beating – trading at 39.07 – below all 3 trendlines. But trying to stabilize. It feels like we are in the $37.60/$40.50 range right now… All 3 trendlines are now converging so that will represent significant resistance until we get some clarity on the virus and the election… because no matter what – the far left wants to end fracking in the US – and that will impact the short term trading pattern… If the pressure builds – then we could see oil trade to the September lows of $37.6-ish. We need to get through the next 2 weeks to see if it clears up at all or not… because remember – if the DEMS win – and they pass a massive infrastructure bill – they will need energy to get it done… and that will drive demand… Period the end.

The S&P closed at 3400 but not before testing as low as 3364! Breaking trendline support at 3407 decisively… and like I said yesterday “this is KEY to watch… because my sense is that if we test it and it does not hold then a push to 3300 is next… Remember what I said – a Biden win and sweep will most likely cause a short term correction… (think swinging pendulum) before it produces a rally based on what will most likely be a massive fiscal stimulus bill…” I stand by that analysis… this ain’t over just yet… Talk to your advisor to get comfortable with your portfolio.

Take good care –

Kenneth Polcari
Chief Market Strategist, Consultant


Rigatoni w/HOT Italian Grilled Sausage and Broccoli 

The markets are HOT, so try the Rigatoni with HOT Italian Grilled Sausage and Broccoli. Simple, hearty, and delicious.

You will need Italian HOT Sausage, broccoli, garlic, olive oil, chicken stock and grated Parmegiana.

Bring a pot of salted water to a boil. Light the grill and get it nice and hot.

While that is heating up – sauté some crushed garlic in olive oil in a large sauté pan… when golden – add in sliced broccoli heads – season with s&p, turn heat to med/med low and cover.  Stirring occasionally.

Next place sausage on grill and cook… turning sausage so that you do not burn on any one side.  Once cooked – remove and place on cutting board… let rest for 5 mins. Slice sausage into bite size pieces and add to the broccoli and garlic on the stove – now add about 1 cup of stock. Season and let simmer.

Boil pasta – for about 8 mins or until aldente. Strain – always keeping a mugful of pasta water in reserve. Return to pot… add back 1/4 of the water… toss and let sit for 2 mins to absorb … now add the sausage/broccoli mix to the pot… 2 handfuls of the grated Parmegiana – mix and you are done. Serve immediately in warmed bowls with toasted garlic bread – complement with a nice glass of wine and some dinner music and Boom! You win the prize. Always have extra grated cheese on table for your guests.

Buon Appetito…