Conclusion, Investment Implications, Strategy

Heading into the results of today’s presidential election, the US broad market is at a critical Tactical decision point according to price, volume, and relative performance versus bonds.  How the market resolves this will indicate what the results of the election will have on the US stock market and, for investors, the market’s opinion is the only one that matters.

#1) Primary Tactical Support In SPX

Chart 1 below plots the S&P 500 (SPX) daily since January and identifies the key index levels as of mid-morning today.  For the past four sessions, SPX has been situated right on top of Primary Tactical Support at 5706 to 5652, which represents the convergence of the 50-day moving average (minor trend proxy) and the Jly 16th and Aug 26th benchmark highs.

Chart 1

The market clearly “sees” this support and thinks it’s very important.  Above it, the current Tactical uptrend remains intact.  A sustained decline below it, however, would suggest that a Tactical broad market top is in place at the July all-time highs, would indicate that a corrective decline is beginning, and would clear the way for a potential additional 6% decline into major underlying support at 5384 to 5368.  

#2) Market Volume

The rightmost red highlights in the lower panel of Chart 2 below show that the NYSE Cumulative Volume Index (CVI) edged below its 21-day moving average on Oct 31st to indicate an emerging monthly trend of contracting volume.  Contracting volume indicates a lack of urgency to buy and is characteristic of Tactical market declines.  The other red highlights show that, although brief, the previous two instances of monthly volume  contraction coincided with the previous two declines in the S&P 500 (upper panel).

Chart 2

It would take a new trend of monthly expansion in CVI to indicate favorable conditions for the larger 2024 broad market advance to resume from Primary Tactical Support.

#3) Relative Performance: Stocks vs. Bonds

The colored highlights in the lower panel of Chart 3 below show that the Nov 2nd trend of monthly (Tactical) relative outperformance by Stocks (SPY) versus Bonds (iShares Core U.S. Aggregate Bond ETF, AGG) is currently being tested.  Relative outperformance by stocks over bonds is characteristic of healthy, sustainable stock market advances.  

Chart 3

As long as the current relative outperformance trend by SPY remains intact, underlying support at SPX 5706 to 5652 is likely to hold and the current broad market advance is likely to continue.  A sustained decline by SPY versus AGG, however, would warn of an emerging US broad market correction.