Headwinds Hammer Halloween- October 30th, 2020

The wicked witch of Halloween week definitely got on the broomstick this week. Casting spells of mayhem in global stocks, commodities, currencies and bond prices, it was a suspenseful week for anyone invested. As Covid soared globally, it seems no one can escape the grasp. With the election on Tuesday and the Fed on Wednesday, we can expect continued volatility. I don’t want to be too pessimistic as the markets have made big rallies around elections before. Volatility is high, but so are infections. The high level of news flow right now swarmed over the large tech names as they reported earnings. Amazon, Apple and Facebook all traded lower. Twitter lost 20% Friday as subscriber growth was 10% of the expected gain.

The polls favor Biden to win, but everyone remembers Hilary having winning polls and losing. The polling firms say they have done more to find Trump’s base. The President’s fan base has been rallying and everyone wonders if another upset relative to the polls is in the offing. I would suggest American investors will roll with what’s working as they always do. The week might require some rebalancing into the results versus polling expectations but it will set the path forward for the next 4 years.

Breadth was obviously ugly. The real problem is the advance decline line for the S&P 1500 broke the uptrend. That is meaningful. As the indexes test September support levels, can they hold and bounce higher? Commodities were struck down as global demand expectations dampened with economies closing.

Summary: The Schnell strength indicators have been very helpful as we got a signal last week highlighting caution. This week we saw a bounce between Thursday and Friday, even though Friday closed lower on the indexes. I still expect some election bounce, but the pandemic is global as countries struggle under the size of the problem relative to size of the hospitals. The weight of the world or the weight of the election?

Let’s jump into the charts. Click below to view the full PDF.