Key Tactical Takeaways: > Although risk assets are bid this morning, the overall structure and momentum backdrop of key risk proxies has the door staying open to a deeper washout before the next tactical buying opportunity develops. > The US$'s recent rotation into a bullish/sideways trajectory should act as a disruptive force for commodity-linked trades for the next few weeks. Stay short USO against ..., GLD against ..., EURUSD against ..., EEM against ....
> Despite this morning's risk-on tone, SPX will be at risk of testing MAJOR support at 3169/3130 pending a close > 3383. > As long as credit spreads remain tame, as they have been, we think any sell-off to SPX ... should be used to take some profits on shorts correlated to the S&P 500. Any decision to officially get long equities will be a "game time decision".
Some Quick Thoughts: If we've said it once we've said it 1000 times, even the staunchest fundamental market participants pay attention to the S&P's 200-day moving average. As long as the S&P is above this line, these "closet technicians" are allowed to buy stocks. After an October where the max intra-month drawdown fell shy of matching the election average drawdown of -3.9% (see page 8), the S&P 500's long-term trend, though hobbled within a lower leaning post-09/02 range heading into the election, is still bullish, with the rising 200-day line still 4.29% below Friday's close. Bottom Line: IF the election outcome becomes clear in short order, we think .... Given the elevated risks surrounding the timing of determining the final election results, the VIX's current position above its top 50-day Bollinger Band, and the lack of a thorough contrarian signal from the equity put/call ratio, we think ... This is an abridged version of our premium content. If you'd like to have content like this sent to your inbox each morning, please click here to sign up for a risk-free, 2-week trial (no credit card required).
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