If Friday’s session felt familiar, it’s because it was the ninth consecutive session where the S&P 500 finished in the red.  This is the longest losing streak for the market since 1980 when the nation rang in the New Year with a recession that lasted from January to July to help set the tone for Ronald Reagan to eclipse Jimmy Carter late in the election cycle and to become president. 

In April 1980, the polls had Carter at 40%, Reagan at 34%, and John Anderson at 21%.  Two weeks out, Carter was still ahead 45 to 39. On the eve of the election, Reagan surged into a 47% to 44% lead and finished with 51% of the vote to 41%.

Ironically, by reacting to the possibility of Donald Trump ascending to the White House, the stock market is making him a more attractive candidate.  Presidential elections tighten naturally, and this one has seen enough ups and down, shocks, and surprises. There are a number of potential scenarios for tomorrow night.

What Else is Needling the Market?

Still, I think there could be more to this pullback than election anxiety.  There is a lack of leadership as more and more individual names continue to breakdown.  On Friday, there were 50% more decliners than there were advancers on the NYSE. And decliners were almost two to one on the NASDAQ, but the ugly nature beneath the surface was more pronounced when measuring new highs against new lows.

Breadth Movers	Advancers	Decliners
NYSE	1,201	1,801
NASDAQ	954	1,841

 

Breadth Milestones	New Highs	New Lows
NYSE	16	102
NASDAQ	31	225

 

Earnings Season

Perhaps, one of the reasons stocks are losing altitude is because of the guarded and weak guidance that has muffled the big news;  with 85% of S&P 500 names reporting, this is the first quarter since 1Q 2015 in which earnings increased year to year. 

• Revenue: 54% beat consensus
• Earnings: 71% beat consensus

Fourth Quarter Guidance:

• 53 companies offered negative guidance
• 25 companies offered positive guidance

Now, money is coming out of momentum names and going  either to the sidelines or into more conservative names.

Meanwhile, there still isn’t a sense of panic. Key support has broken and now I’m calling 2040 to 2000 on the S&P 500 ‘must hold’ support.

It will be interesting to see how the stock market reacts to the update from FBI Director James Comey. He essentially said that there is nothing new from the Anthony Weiner email scandal, but underscored the original assessment of reckless carelessness. 

Keep in mind that the market was already in trouble before the October 28 bombshell, with the S&P 500 pulling back after failing to get above its 50-day moving average on October 24.  A big sign that stocks could be ready to rally higher would be a close above 2105. 

A true reversal comes with a close above 2160.

Today’s Session

This relief rally gives us a chance to see what kind of appetite there is out there beyond a knee-jerk bounce.  There is still an election, and there is still the issue of digesting the winner’s policies and the market’s reaction. It’s good that stocks can move higher, but this big opening will unwittingly create the test of holding onto gains, when the trend has been to open higher and struggle into the finally hour of trading where bulls throw in the towel.

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