Trading position (short-term; S&P 500 futures; my opinion): long positions (100% position size) with stop-loss at 3115 and initial upside target at 3550 are justified from the risk-reward perspective.

Dawn aka rise in stocks – right on cue. Will it turn out false, with stocks turning south and below the September lows? I don't think so – just as I wrote on Oct 26 in my article Stocks Are Like a Freight Train Gaining Speed, the parallel to 2016 is still intact today.

In yesterday's article S&P 500 Enters Turnaround Mode, I've recapped the facts:

• There won't be a stimulus deal before elections
• Fed stepped in and lowered the Main Street lending facilities' loan threshold from $250K to $100K, helping with the late-Friday stock rebound
• Trump isn't broadly expected to win
• The winner might not be known on Nov 03
• Stocks (FCX vs. ICLN lately – FRAK or KOL ETFs alone don't tell the full story) lean more favorably to Trump than the mainstream polls or even the bookies
• Lockdowns overseas are largely priced in

I've also argued earlier for the positive effect of removal of (some) election uncertainty. Yes, its effects have been harsh last week, exacerbated by the lockdown fears, which however ignore an important fact.

While Europe has effectively flattened the curve in spring, slowing down new cases (let's leave aside the non-reliability of PCR or antigen testing for a moment) to a trickle, back in the U.S. the flattened base was established at a much higher level – the plateau was and is beyond comparison for multiple reasons (some fast reopenings, Sunbelt surge, rioting across the large cities etc).

This makes Europe's casedemic explosion much easier to explain, and stands in stark comparison to no new "corona waves" in Sweden that just let it run its course earlier. Or take the similarly hands-off approach in Belarus with all the mass protests running for weeks since their presidential elections and see they're not dropping like flies. Apparently even the WHO is up to something by declaring that lockdowns just buy you time, delaying the inevitable – at tremendous economic and other costs.

Coronavirus is not the unknown unknown that it was back in February or March – the world is better equipped to deal with it now. It doesn't generate that amount of inordinate fear it did back then, as the below Google Trends chart shows. It's only when the economy voluntarily or involuntarily shuts down, that brings widespread suffering.

No, the fear lies elsewhere, and you for sure remember me talking about that the lockdown cure can't be worse than the disease (again, chart courtesy of Google Trends – please note the heavy regional focus: it's South Africa, India, UK, Australia and New Zealand that are more responsible for the current spike than Europe or U.S. in general).

Then, central banks around the world stand ready to support the national economies – and Australia just acted too. What will the Fed do on Thursday?

As regards fiscal policy, the markets are betting that the stimulus hurdles would be one way or another removed (this isn't about my Oct 26 call for Trump landslide or that he can pull another rabbit out of his hat like 4 years ago) – and thus stimulus would come. By the way, FCX rallied nicely yesterday while ICLN relatively lagged – the markets are leaning towards Trump some more in the final days (just as African Americans or Latinos did).

The bar for stocks is set tremendously low – be it in economic output or earnings expectations. Couple that with activist Fed and stimulus on the horizon – this mix can power stocks higher. I know perfectly well that the bears are often sounding smarter than the bulls but lasting pessimism isn't a hallmark of anything. Track the calls, follow the money generated this way – that's the true metric of success (thus far, I captured 931 points of S&P 500 closed profits since Feb 2020).

No, this is not a double top in S&P 500 – the governments have become way more inventive since the Great Depression (and unshackled from the gold standard or its attenuated forms), and thus I call that we won't experience as harsh (stock) crashes as we would otherwise have had if we weren't under a fiat currency regime where new money creation and its transmission mechanisms have become this easy and smooth).

Look, the most important question that investors and traders need to ask, is whether we're in a bull or a bear market. And looking at the position of various (50-day, 200-day) EMAs on different (monthly, weekly and daily) timeframes (or EMAs slope, perhaps even their ribbon), I say that this is a bull market – and such a 10% correction is to be bought, not sold and declared as a start of a new bear market.

I would even go as far as to tell that it's been historically right after corrections of similar magnitudes that we have seen solid gains next – of course, within the bull market context only. And I have not been proven wrong that we are in a bear market – and unless I am (hint – I don't expect that market character transition in 2020 at all), the gains from the upcoming $SPX move are more likely than not to be worth it.

Just look at the tech sector and semiconductors – they're turning higher with the latter leading the way. That bodes well for the 500-strong index.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

The daily chart shows the rebound in progress. Turning around on Friday quite a bit above the September bottom, the stock bulls are on the move now.

Credit Markets and the Dollar

High yield corporate bonds (HYG ETF) were again strong on a daily basis – and even made a sizable spike, which is in my view indicative of where the markets truly want to go next – as in a path of least resistance.

Both leading credit market ratios – high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) – give appearance of risk-on moves to go on.

Long-term Treasuries (TLT ETF) are tellingly unable to spike – no rush to safety, no frantic panic to raise cash either. And inflation isn't sinking Treasuries either.

Let's take on the dollar now in the context of risk-on vs. risk-off assessment. If Treasuries didn't rise, the greenback could have stepped in – yet it didn't. Is it because the markets aren't taking risk-off trades seriously? Couple that with rising put/call ratio and increasingly vocal bears, and you get the point which way the boat is tilting more prominently these days. Time for a wildcard, for a surprise? I think so.

Key PMs and Commodity Ratios

If we were on the verge of a serious risk-off move, gold could be expected to spike relatively to silver. Or at least to be in a rising trend. No, there is nothing like that going on that would stop the ratio's gradual decline. That's quite a feat for the white metal, given the money printing support (and anticipated inflation tailwind) the king of metals is getting.

Even the gold miners to gold ratio isn't serious about any kind of breakdown here – and thus doesn't point at a bloodbath in metals ahead. That's another point against a heavy decline in stocks.

Copper to gold also shows that the red metal isn't under heavy selling pressure. That's a vote of confidence in the economic recovery to go on.

The oil to gold ratio is down, but hasn't taken a real beating. I take it as the markets not currently believing that we're on the cusp of another deflationary crash that would depress the oil prices as badly as in April.

Oil can be and really is volatile – and I am not taking lightly the weakening of Russian rouble that has been going on since June. For now though, I see a daily reversal candle pointing higher in the ratio yesterday, and $WTIC going up by a few percent today.

Regardless of all the green economy talk, the world still runs on oil largely – solar and wind can't fill in the void totally yet (California rolling blackouts, anyone?)

This chart presents the commodities' verdict on the S&P 500 future. With both copper to gold and oil to gold ratios holding as steady as they are, they both point to the overdone nature of the $SPX downswing in October, and favor the economic recovery – and by extension the stock bull market – to go on.

Summary

Summing up, stocks are marching higher on the election day, extending yesterday's gains. Both the credit market and commodities action points to the stock bull market continuation, and regardless of the uncertainties of the day, to higher prices ahead. I look for the elections-related volatility to be resolved with an upswing, and I've presented the case in the opening part of today's special analysis. Will the election results deal the markets as much certainty (and not a drawn-out battle) as they would and do anticipate?

Trading position (short-term; S&P 500 futures; my opinion): long positions (100% position size) with stop-loss at 3115 and initial upside target at 3550 are justified from the risk-reward perspective.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.