Ton of Cash on Sidelines – Big Upturn ?

Investor’s first read – Daily edge before the open
DJIA:17,888
S&P 500: 2,085
Nasdaq Comp.:5,046
Russell 2000:1,163
Monday, November 7, 2016 9:08 a.m.
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FBI PROBE – A REVERSAL
Having completed its 24/7 study of the new Clinton e-mails, FBI director James Comey wrote in a second letter, that there is no reason to bring charges against Hillary Clinton. He did make a point that he was holding firm to his July conclusion that Hillary Clinton and her team were “extremely careless” while handling classified material.
On October 28, Comey jolted the nation as it was going to early voting with a letter to Congress that new e-mails were discovered related to people close to Clinton and would have to be investigated.
Undoubtedly, the first announcement had an adverse impact on Clinton’s chances to win, Comey’s second letter will prevent further damage, but cannot undo the damage of his first letter.
Futures trading indicates a huge gap up in the market at the open. Obviously, this announcement was not expected so soon after the FBI’s first announcement of an investigation. While it was known that ultra-high speed computer software was deployed to review the 650,000 e-mails in question, an announcement in favor of Clinton was the last thing the Street expected.
Someone may have suspected something Friday as the market rallied until late day, when due to the negative overhang of news, it should have plunged.
TECHNICAL
There is no longer any question that the Street feels more comfortable with a
Clinton presidency, than a Trump presidency. A sizable “gap” open will
occur today, as a result of yesterday’s FBI letter.
Whether enough damage has been done by the FBI’s first letter to give Trump a win will be known Tuesday night, Wednesday Morning.
This is a game changer, it reduces the erosion of support for Clinton, but there may be more surprises. As the Street prefers, Clinton must still win, but then Trump must concede. Failure to do so, tosses everything back into an uncertainty mode.
Technically, it doesn’t matter, the electoral college results rule. There just would be a few days for that to sink in, ergo uncertainty and some weakness in the market.
There is a good chance now for a meaningful recovery. There is a ton of cash on the sidelines, and sizable short positions that will be covered with panicky buying.
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RESISTANCE “today”:DJIA:18,149;S&P 500:2,118; Nasdaq Comp.:5,119
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THE BEST SIX MONTHS
The six months between November 1 and May 1, tend to outperform the six months between May 1 and November 1, labelled the “Best Six Months” by the Stock Trader’s Almanac which began tracking the pattern in 1986.
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iShares 20-Year Treasury ETF down 9% in 4 months
On Wednesday, the Fed indicated that the case for a bump in interest rates has increased, but opted out of doing it this month. It looks like it will happen in December.
Long-term bonds have gotten hammered in the last three months. The iShares 20-yr U.S. treasury bond ETF has lost 9.1% since July. That’s four times the yield an investor expected over 12 months. Bonds can be risky. Let’s not forget the name of the game is to buy low and sell high, which applies to long bonds as well as stocks.
A survey of economists reported by Bloomberg yesterday calls for U.S. inflation to surpass the Fed’s target in every quarter of 2017, which if even half true should depress long-term bonds even more.
The Employment Situation report came in Friday, 161,000 jobs were added in October, the unemployment rate was 4.9%.
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MY TECHNICAL ANALYSIS of the 30 DJIA Companies:
On occasion, I technically analyze each of the 30 DJIA stocks for a reasonable risk, a more extreme risk, and an upside potential over the near-term. I add the results of each, then divide by the new DJIA “divisor” (0.14602) to get the DJIA for those levels. This gives me an internal check on the DJIA itself, especially if certain higher priced stocks are distorting the averages.
As of October 21, 2016, a reasonable risk is 18,026 a more extreme risk is 17,986 Near-term upside potential is 18,481.
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 STATUS OF MARKET: Neutral – trending to bullish
 OPPORTUNITY: RISK: Opportunity !
 CASH RESERVE: 25% – 35%.
 KEY FACTORS: Uncertainty of election to be resolved in two days, earnings slide may be over.
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Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
*Stock Trader’s Almanac
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George Brooks

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