Key Tactical Takeaways:
> Despite the S&P"s recent stability, the short and near-term trends stay leaning toward ... against ... and ..., respectively. With extreme volatility a possibility today, today's odds that SPX settles between 3373 & 3248, between 3435 & 3185, and between 3497 & 3123 are ...%, ...% and ...%, respectively.
> Against ...%, the 10Y yield eyes ...% to ...%. In the event of a "Blue Wave," ...% to ...% become the initial target.
> Crude has reversed higher from the low-end of the range, but needs to close > $... for risk to shift to the high-end of the range.
> The top 3 strongest technical sectors are Materials, Industrials, Cyclicals, while the weakest are Energy, Real Estate, Staples. The top 3 highest volatility sectors are Energy, Cyclicals, Real Estate, while the bottom 3 are Utilities, Staples, Materials.
> While it is warranted to take profits on our UVXY at any time, we're letting the position run. We're holding very few positions heading into today's election.
Some Quick Thoughts:
Believe it or not, it's actually OK in this business to say "I don't know" when asked to give an opinion on the market heading into a binary event as important as today's election. I can tell you from first-hand experience that large institutional traders often reduce exposure well in advance of such events, so you're in good company if you've decided to do the same in recent days. Heck, we've even been very quiet on the trade ideas front, taking things down to just 3 positions in recent days (see page 3). Speaking of which, if you've been fortunate enough to ride our long VIX (UVXY) recommendation higher from day one, we remind you that it is warranted to take profits at any time, being that UVXY exceeded our initial target on 10/28. However, for record keeping purposes, and because of the POSSIBILITY that the massive VIX short position (as of Friday's COT report) might just be wrong, we're going to let this position run until the VIX settles below its near-term trailing stop of ....
We've been fortunate enough to be on the right side of this market since late September, when our study of the VIX tendencies leading up to past presidential elections revealed a very high likelihood that equities would suffer from pre-election de-risking (see page 8). Now that the big event is here, we want to start looking for long opportunities because of November's favorable seasonals, the supportive 200-day moving average, and the hoards of sideline cash. At the same time, though, the elevated odds that the election will be contested, the lack of a contrarian signal from the equity put/call ratio, the recent inability of key stocks to rally after strong earnings, ongoing defensive sector rotation, and recent indications of extreme long positioning by large speculators have us willing to miss picking THE bottom right now. Essentially, we want the market to prove itself. To do so, we'll want to see the S&P 500 close above ....
Lastly, it is important to note that the benchmark 10-Yr yield is starting to look comfortable above its .... Although the slope of this long-term smoothing line is still aggressively lower, a knee-jerk reaction to a "Blue Wave" outcome, should it materialize, could spark a Treasury sell-off to ...%/...% on the 10-Yr yield in a blink of an eye. This scenario only becomes negated with a close below ...%.
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