Despite the drama of the presidential election and debate, there are only two issues that matter to the market right now. The first is the possibility of a fiscal stimulus deal and the second is the ability of the indices to overcome technical resistance and produce upside follow-through.
Nancy Pelosi announced on Wednesday that a vote would be held in the House on the Democrats' fiscal stimulus bill. This would have effectively killed any deal as there is no way that bill would pass in the Senate. Later in the day, the vote was canceled and renewed negotiations began, which is giving the market some hope of a breakthrough, though there are substantial obstacles.
The market is going to continue to dance around on any news or rumor of a stimulus bill, but what adds an element of uncertainty to the situation is that the indices are sitting in a very vulnerable position right now.
There has been a V-shaped bounce since the lows were hit on Thursday, Sept. 24, and now there is significant resistance around the 50-day simple moving average (SMA). The Nasdaq and S&P 500 have been unable to generate a technical follow-through day to a lack of volume while the Dow Jones Industrial Average (DJIA) managed a weak follow-through Wednesday. That doesn't mean the indices can't continue to trend higher, but they are vulnerable to negative news flow. It won't take much to produce some downside action at this point.
An additional factor that may have an impact on the market is that this is the first day of the fourth quarter. Typically, there are 401k inflows that are put to work, but October is known as a month that has some significant downside at times, though it is also the month that bottoms occur as we head into the positive seasonality of November through January.
Earnings season begins in two weeks and we should see some positioning. The big concern will be whether solid reports from FATMAAN names are sufficient to overcome concerns about valuations. There has been an increase in large corporate layoffs lately and that is causing some concerns and negative headlines.
A stimulus bill will give this market a short-term boost, but there are technical and fundamental issues at work I continue to find favorable stock picking and that remains my focus.