Market Analysis

The Bull Case

Time to put up or shut up for bulls and bears as we enter the final 2 months of the year and with the US election just a few days away.

As traders are watching the ongoing stimulus headline drama unfolding the bull case may be rather obvious but worth highlighting in the charts. At a time when valuations no longer seem to matter and most of traditional correlations lay in ruins due to unprecedented interventions by central banks the bull case is the obvious one: Get more stimulus and markets will rally higher once again.

After all, and it must be acknowledged, the intervention has so far once again worked in 2020, indeed interventions have created the largest break in correlation between the economy and market prices ever:

And indeed, all corrections since the March lows have found steady support on retests and have engaged in a series of higher lows.

So if nothing matters and more stimulus is to come the bull case then counts on historic distortions to continue unabated.

And there is a standard seasonal script in favor of bulls into year end, that of the presidential election year kind:

In context the current chop and weakness since the September peak is fitting perfectly with that seasonal script..

And speaking technically now, the bullish pattern I highlighted in my recent videos have not been invalidated despite several downdrafts this week.

For reference the pattern I mentioned again last Friday:

And now with several more days of price action under their belt this pattern continues to defend the backtest of the neckline and is sporting a potential bull flag to boot, see $NDX and $SPX charts below:

So yea, get more stimulus or the belief in more stimulus and these charts are primed for a rip.

Even last night’s further drop in futures found perfect support at the bottom of the flag on the futures chart:

So yes, the bullish case is obvious and apparently very much embraced by participants as asset managers have again loaded fully long:

For bears the challenge is clear: Invalidate these patterns and fast for the potential dollar cup and handle pattern is teetering at the brink of extinction as markets continue to expect more stimulus:

Perhaps of note here is that bulls have not been able to take advantage of this renewed weakness in the dollar and that could prove to be an important divergence.

Why? Because, for one, these bullish patterns, while not invalidated, have yet to validate themselves.

And the $VIX? Well, oddly enough it keeps staying in its potential very bullish structure having defended the breakout out of its consolidation pattern several times this week:

The battle line for control in all of this? Perhaps equal weight and the tightening price structure in $SPX:

Bulls need to break above equal weight resistance and bears need to prevent the breakout.

The battle zone for control is inside the $SPX pattern structure above. Upside risk per the inverse pattern outlined is into 3650 and the upper trend line.

So you see, the next few hours, days and weeks are key for all this and the time is rapidly approaching for bulls and bears to put up or shut up.

The bear case? We can visit that one once/if the patterns outlined above are invalidated, but know the downside risks are vast and if $VIX maintains its structure the bear case may come in a hurry, but at the time of this writing bulls are maintaining control with a razor thin margin above  $SPX 3400-3430.

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Categories: Market Analysis

24 replies »

  1. The stock market is already in a bear market when measured in Gold (real terms). And it will continue to decline against gold and silver, no matter how much stimulus they pump out. It may go up in nominal terms, like Venezuela has, due to hyper inflation but it is all over for the next 2+ years. Finis.

  2. Yes, that sounds very much like a wild boar, more probably 2 ‘cos s/he was talking to someone, I’m not sure what was being said but it could have been amourous. I looked after between 5 and 30 wild boar and wild boar x Tamworth for 5+ years while up in Scottish Highlands. Generally they are very friendly when they get to know you – especially if from young – and really like to be scratched. They eat most things but don’t like citrus or garlic; bread and chips seemed to be particular favourites of ours.

  3. “So you see, the next few hours, days and weeks are key for all this and the time is rapidly approaching” Economic 9 1 1 coming.. we all know the real economy is in the toilet, it’s time for the market to follow. How can things be bullish when everything is re-closing again.

  4. Stimulus optimism appears to have reached its limit of utility. My hunch (and it’s nothing more than that) is if a stimulus agreement is not made, in principle at least, tomorrow, Friday, then stocks will begin a fairly precipitous drop prior to a probable post election result ramp. But beware: the latest wave of pandemic is likely to accelerate upwards and econo expectations have not factored this in at all. If stocks are higher in 6 months time I will be astonished. Tonight’s pres debate is unlikely to have much effect unless something surprisingly untoward happens, markets seem reasonably comfortable with a Biden win, with or without the Senate.

  5. The economic destruction is ongoing and will continue getting worse. After the election, when Trump wins again and stimulus money fades away the markets will re-connect with reality and slowly grind down in value for years to come. Cases & deaths of Covid-19 from the deferral of the of the first wave will continue this Autumn and into the winter of next year and it will be even worse than the winter/spring period of last year. Wearing masks don’t work…………in fact they actually help to increase the spread of the virus even more. Our economies and the world are being propped up artificially. Our societies are layering mistakes upon mistakes while we defer the consequences of those actions a few more years down the road. This is not a test, we are at the beginning of the most destructive Greater Depression the earth has ever known. This trip will take decades to fully play out. Yesterday is “Gone With The Wind”.

  6. It kind of seems like an enormous amount of thought gets put into trying to predict which way this market is going over the next two months. The election variables and ensuing human emotions tied to such are way, way too complex for even the algorithms to follow with any sort of precision and/or accurately, let alone human intelligence. Also, unless you have a $10 million dollar portfolio or larger, does it even matter as going from 3450 to 3650 is just a 5.8% gain. So for every $1 million in SP500 ETF, you get $58,000, yet after the increase in capital gains tax to 40% in 2021 (for those with millionaire porfolios), that results in $34,800? Is $34,800 a lot of money, does that make one finally “happy”, “successful”, “fullfilled”??? Note the new GM (Government Motors) EV hummer truck listed for $112,000 base price two days ago. With a 10% mark-up, and say 6.5% sales tax, a GM “halo” truck (yes a “GM” pickup truck) costs over $130,000. So once the blue wave may or may not hit voters in January, you know the one that Wall Street is fantasizing about, once that “beautiful” blue wave hits and capital gains go from 23% to 40%, it “only” takes a $3.77 million dollar portfolio gaining 5.8%, after taxes, to buy a Government Motors pickup truck?!?!? And just wait until the (M)agic (M)oney (T)rain hits full force and the entire world gets that “good inflation” spike that global central banks have been sweet dreaming about in 2021-2023. If we keep printing $10 trillion a year and dropping it on the voters, they will ultimately insta-spend it and inflation well above 2% will be a high probability event. Then what, we all need $10 million dollar portfolios or larger to buy the next GM truck that will cost $180,000 in 2025. Is this a joke, are we unknowingly trapped in a capitalism computer simulation? Logically, is this not somewhat insane? What is the end game, seriously?

  7. The issues I follow are dead…no volume at all. As you’ve said before, outside of a few big names the market is really structurally weak. Not down the road…now.

  8. In feb of this year I could not believe that the market just kept going up….eventually it crashed. Today, I feel even more perplexed about what is happening….so will we have a 50% crash this time?

  9. Looks like Nancy loaded up on SP500 call options, and will be pumping the market from today until at least late January, 2021. Per Bloomberg, Oct 25th:

    If no coronavirus relief bill is passed before the election, Pelosi said House Democrats would keep pressing (pumping markets) for an agreement in the lame-duck session after the election. She said they would not wait until January, even if Democrats won control of the White House and both chamber of Congress—>Insanity – why rush a bad bill vs wait 6 weeks to pass the dream blue bill (pill)???.

  10. For a fifth time this season a tropical storm, Zeta, is forecast to hit NOLA, due to arrive Wednesday. The first four veered away. It should be just shy of hurricane strength at landfall.

    The debate likely changed nothing but it was almost a pleasure that it was distinctly more civil than the first. I’d say it was about even: Trump overperformed on demeanor, Biden clearly won on expressing policy (not difficult ‘cos Trump seems to have none beyond repealing anything Obama and destroying the planet).

    Are you ready for the precipitous drop? It’s about to start. First stop SPX 3200.

  11. Facebook and social media need to be abolished

    Social media with its endless fake news and conspiracy theories is making society ungovernable

  12. Zeta remains on course for NOLA, forecast arrival Wednesday evening/night at borderline hurricane strength.

    Normally after a biggish down day like today (Monday) I’d expect something of a bounce back next day. This time I don’t, I think below SPX 3200 is targetted this week and Tuesday’s have been fairly negative lately. Will we get there tomorrow? Unlikely.

  13. By the close, they managed to drag it screaming back above the line on the sand (3400). Can they prop it up again today? It clearly wants to blow off.

  14. Zeta still on course for NOLA, moving a tad quicker than expected and perhaps a mite stronger. Landfall late Wednesday afternoon.

    SPX 3390 (and 3380 Dec futures) was ferociously defended Tuesday only to break down by 10+ points soon after hours. So Tuesday was neither bounce nor crater day but we’ll likely see one of either in the next couple of days. My bet: tomorrow, crater.

  15. Europe is dragging down futures tonight…..timber! Better “release the Kraken/Kudlow” Wednesday AM…

    “EU officials have said vaccines are unlikely to be available across Europe until 2022, according to Reuters”

  16. Zeta landfall imminent as a cat 2 / 3 hurricane near Grand Isle LA, then on to NOLA, which isn’t dodging this one though centre likely to pass slightly east of it.

    Today’s markets (Wednesday) much as expected. Took profits and tried to catch a bounce which didn’t happen so a couple of small gains and losses. I have no opinion yet on Thursday, could go either way and be quite a big move, will wait and see, though I have a tiny bet on SPX going up. We should to get a 50 point bounce in next 2 trading days but I expect SPX to be lower on Nov 3rd than it is today, about 3200.

  17. 3100/3130 zone is on the radar. I have auto-buys from 3100 to 2400, doubling purchasesvolume each 50 points down (only way to avoid the emotions). Not sure Fed will allow much more than 10% from here, yet contested election could short circuit the Fed put. 2850 to 2756 is super critical support zone. Again, Fed and even the govt will throw the kitchen sink at the markets at this zone so flip a coin as markets are pure gambling luck at this point due to both Fed and Govt interventions…

  18. Sven – where do investors “hide” (other than cash) when even the “safe bonds” holdings are looking quite scary? I can only guess the Fed steps hard into supporting bonds before stocks, yet when does that happen??? (3100? 2850? 2200?)

    Per Bloomberg today:

    Moody’s Investors Service released a report on Wednesday that revealed the amount of debt from U.S. companies considered potential “fallen angels” jumped to a all-time high of $254 billion in the third quarter, from $217 billion at the end of June. These are bonds from companies rated Baa3, one step above junk status, with either negative outlooks or expressly on review for a downgrade below investment grade.

    It’s been well over 100 days — and in some cases more than 200 days — since any of these companies had their outlooks revised to negative. Moody’s and its peers have been relatively patient in monitoring how the virus outbreak develops and how the U.S. economy reacts before making across-the-board downgrades. Should the current trends persist, however, they might not be able to hold off much longer.

    • Grump’s burnt the cake already, Terry. Best hope he loses next week so he can’t finish burning the planet lest it responds by burning most of the remaining humans – including you and me.

      • The consequences of a Biden win are just too dreadful to contemplate. Seriously, Democrats, Liberals in power again! This is just wrong on so many levels.

  19. We got the 50 point bounce but the day’s trade was very tepid despite marginally positive econonews.

    Two observations on the big tech earnings response after hours:
    1. Just shows how artificial the low bar for earnings estimates is when beating them handily causes a 5 to 10% selloff.
    2. Sentiment is distinctly negative.

    SPX 3200 tomorrow.

    Terry, best we do not continue our discussion (especially here), there is unlikely to be any common ground between us, our perceptions of reality seem diametrically opposed at first glance. Good luck and fare you well, may you do no harm.


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