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Pre-Election Melt Up to Test Pre-Covid Highs - Morning Market Squeeze

Key Tactical Takeaways:


> Today, we say goodbye to our most profitable trade so far, as we close out a 104% gain on our AVCT long. At the same time, we are going long the US dollar via UUP again.


> The risk of an intra-day overshoot to the upside is elevated for the S&P. With the all-time high at 3393.52 and the day's 2σ confidence band at 3399, however, the overshoot should only extend to between 3380 and 3399.


> Though long-term bullish, an intra-day push above 159.98 by the small cap ETF (IWM) on Tuesday would make it worthy of tactical profit taking.


> The industrials sector is the latest sector to break to new post-crisis highs.


Some Quick Thoughts:


With the 2020 presidential election fast approaching, the current administration has accelerated its efforts to make market participants happy in recent days. Equity bulls must realize, however, that due to the complexity and legal standing regarding the 4 executive measures announced by President Trump this weekend, this announcement will probably prove to be mostly smoke and mirrors. In addition, the overnight announcement that President Trump wants both capital gains and middle-income tax cuts instituted is something Congress would be unlikely to pass by year-end. Like it or not, this positioning is smart politics, as investors probably remember that Democratic presidential nominee Joe Biden has previously said he would double capital gains tax for higher earners.


For now, stock investors can rejoice that Big Government is their friend. When supportive news such as this starts to feed positive feedback loops (i.e. buying of stocks begets more buying), it becomes a technician's job to determine the level of melt-up potential. Ahead of the election, there's no question...


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