Yesterday the S&P 500 (SPX) did something it has not done since October 2008 when global markets were in the throes of the worst economic and market crisis since the Great Depression, it closed down for its seventh consecutive day. That sounds like an ominous stat. But let’s put that move in some context. The losses totaled a mere 2.5%. Back in Oct 2008 the SPX was moving 2.5% an hour:
The sell off last 7 days places the index down 4.5% from its all time highs made in August. Make no mistake the near term technical set up is deteriorating, below the uptrend from the February lows, and now teetering in and around the July breakout level at 2100:
It’s important to note that while the October Surprise sell-off has tracked tightening election polls, it’s not like there has been a massive flight to quality. The U.S. Dollar Index is actually down 1.5% in that time period, still very range-bound:
U.S. Treasury bonds, measured by the iShares 20 yr bond etf, the TLT, has had a slight bounce, about 1% from a 6 month low, at a level it should have found technical support, and it’s still down about 8.5% from the multi-year highs made in July, not exactly screaming panic:
Gold has ticked up a bit, now up about 2.5% from Oct 24th, but down 1.25% from yesterday afternoon. Also not screaming panic. The 5% sell off in crude oil since Oct 24th does speak to risk off, but I suspect that has more to do with the wrangling by OPEC members in their efforts to secure production cuts this past weekend.
From where I sit, there is certainly reason to worry about markets if there is a surprise Trump victory. Market participants don’t seem prepared for it. But with spot VIX just above 19 as I write, and the SPX’s slow grind lower over the last 7 days, it doesn’t suggest investors are panicking either. If the SPX were to keep trending lower into Tuesday, and Clinton does pull it out (needs to be decisive that evening, a dragged out election like 2000 could be deadly for markets) then I suspect we get a relief rally. If Trump wins and we are lower than we are now, perhaps 2050 in the SPX, then maybe we break support at 2000 and all bets are off (which has been my view for months in this scenario). In that case doom bunkers will be the hot sector, at least until we see some discernible economic vision when appointees are made during the transition.
I guess more disturbing than the performance (or lack thereof) of the risk assets listed above is the loss of leadership over that time period of Apple, Amazon, Facebook, and Google,about $2 trillion in combined market cap down about 5% since their quarterly reports over the last 7 trading days.
For months on end we have highlighted the concentration of the top 5 holdings in the Nasdaq and why this set up makes us nervous, the most recent from last week —> (Breadth Mints – QQQ)