3-Sigma Weekly Rally, Triangle Top Form Wall Ahead of Jobs - Morning Market Squeeze

Key Tactical Takeaways:

>  If you have been fortunate enough to catch the post-election S&P rally, key areas of the risk complex like HYG, QQQ and SPY witnessed short-term extensions that warranted some profit taking on Thursday. Long-term trends still ...

> After the near-term bearish structure reversed on Wednesday, the 10-Yr Treasury yield faces a test of the key ... area ahead of today's NFP report. This stays the case pending a close > ....

> While oil's bearish near-term trend turned bullish/neutral on Tuesday, this morning's weakness is a reminder of how volatile oil has been recently. Despite this morning's weakness, the short and near-term trends stay bullish against... and ..., respectively.

> Although metals have likely bottomed, our gut feeling is that the dollar's post-Sep bottom is poised to become more complex. DXY ... is an AREA where the next leg of the post-Sep corrective structure may start to bottom.

Some Quick Thoughts:

Like a lot of folks, after de-risking ahead of the election we have missed the recent rally driven mostly by the unwinding of massive pre-election derivatives hedging. With a new cycle of monetary manipulation expected to start soon, bullish year-end seasonals kicking in, and bullish historic returns under a Democratic President and split Congress supporting the narrative that big tech will not be regulated and corporate taxes will not be raised, at least for the next 2 years, we are gearing up to add new longs to our trade ideas sheet. Right now, we'll definitely be adding FedEx to the sheet at the open today, due to the strong tendency for bullish cycles not to peak until December. In the meantime, though, as we suggested in Thursday's note, a 3-sigma weekly rally up to post-09/02 downtrend resistance near SPX 3524 would present a great opportunity to do some tactical selling. On the trade ideas sheet, you'll also notice that we've returned a short position in ...

Just to expand on the comments made above regarding bullish historic returns under a Democratic President and split Congress, the Washington Post, citing CFRA Research, notes that since World War II average S&P 500 calendar returns under this scenario are actually the most bullish at +13.6%. The next most bullish scenario being a Democratic President under a GOP Congress at +13.0%.  

The only economic discussion in the US the last six weeks has been around stimulus.  That topic is likely on hold until December, putting more onus on October payrolls to confirm or question the consensus of smooth macro recovery ahead.  After ADP disappointed, expectations of  up 600,000+ have softened.  The single most popular outlook is 500,000 with outlier expectations that stretch to 900,000. The next major October release does not appear until retail sales report Nov 17. 

One of the more common questions we field from customers is "what's your gut feel" regarding certain asset classes. Well, since you're asking, we just can't help but think that the dollar is not ready to collapse from here. Although metals have likely seen a truncated bottom (truncated because gold did not fall into our ideal buy zone) put in place, we think an AREA where the next leg of the post-Sep corrective structure may start to bottom. 

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