We remained flat all week as we discussed for the election and FOMC. It turned out to be one of the most contrarian volatility cycles we have seen, starting with Tuesdays session when many brokers suspended day trade margins. The week was one of the calmest weeks we have seen in awhile and the FOMC session was the calmest FOMC session we can remember. This is contrary to what we and many had anticipated could be a "back and forth" week while waiting for election results.
The rally is something we anticipated after some initial volatility, but the trend started much earlier than anticipated on Tuesday at the beginning of the day, before the election results. The Nasdaq never traded below 20,000, as we anticipated, after testing it about 6 times, and was within 10 points on several attempts. We also anticipated that this early rally could occur since we have started to see this pattern of the trend taking place during the event starting last November with FOMC. We posted this FOMC pattern earlier this week.
We continue to see the markets trying to move higher at night and during news cycles instead of normal trading sessions. Today was an example as daytrade margins were back on and the Nasdaq day session range was about 104 points. I have some new strategies that I am finalizing to capture these nighttime moves if they persist. We will have to see how they work in the portfolio since they could be a part of a Portfolio update.
Even if we had traded earlier in the week, the price action was still not favorable intra-day for our strategies.
Since many of the moves were overnight, the One Millon MNS 112 hypothetical signals (Monday through Wednesday) going into FOMC was -0.36%. We don't trade this portfolio on FOMC Days, which was yesterday.
The Stock Index Portfolio 18 hypothetical signals (Monday through Wednesday) going into FOMC was -$5,740.
The Portfolio Calculator will be updated over the weekend to see the final results for the week and adjustments for trading next week will be noted and updated.
It is clear now that the type of trading in September started to become more and more sloppy all the way up until election day. The price action on election day was straight up on the indexes but it was still unusual price action as many strategies did not take signals and the market internals were very weak relative to the moves in the Indexes. The Russell 2000 was up 5% on Wednesday (while other indexes were up big as well) while the Advance Decline Line closed at only +600 area. Strong days in the broader markets typically see the Advance Decline line up at 1200-2000 range.
In general, we will take a look at adjustments for the portfolios but the price action the last two months and especially since the second week of October represents a short-term window that isn't typical.
The market trades like it could melt up into the end of the year so some night trader strategies starting in the evening session could be in order. The euphoria of certainty around the election could also weigh on the market next week and a massive mean reversion trade would not be a surprise either. The markets do remain overbought technically and overvalued fundamentally. This doesn't always mean a top is in place.
Seasonally, this is a strong time of year and many strong moves start in November. In recent years, the bullish moves started after the market was down. In 2021, November marked the beginning of a bear market in the Nasdaq when it was at all-time highs. It will be interesting to see if the market will continue to rally in November when it is currently at all-time highs. In recent years the indexes only rallied starting in November if they were in a pullback while selling off when at all time highs. Is November the reversal point for the current trend?
The VIX fell to the 14 handle today after being as high as 23.
So live trading is back on for Monday? Or wait for portfolio change?