We have mixed action on Monday morning as investors await the election results this week and the consumer price index report on Thursday. Breadth is running very close to flat as small-cap stocks and biotechnology lag.
It is not terrible action, and it makes for a productive technical setup, as we head into the big news events. The S&P 500 is still under its 50-day simple moving average, but the market seems to be digesting negative news quite well. Both the Apple (AAPL) supply issues and the Fed's lack of pivot last week are events that could have triggered much deeper selling, but that isn't happening so far.
Many are discussing the impact of the election on the market. In general, the market prefers gridlock, and that is very likely to be the case, but the one concern of many investors is that there will be contested votes in some states, and that is going to stir up animosity again.
I'm feeling slightly optimistic about the market's ability to navigate news flow as we head into the end of the year. The next interest rate hike in December, however, is still a coin-flip between a half percentage point and and another three-quarters percentage point hike, and we aren't going to see any strong trends until that becomes clearer. It is likely that the CPI report will tip the scale on Thursday.
I see some very choppy action in small caps, especially those that are dealing with earnings. It remains quite difficult to build long-term positions, and I don't see much value in doing so right now. I don't see any edge in putting substantial capital to work right now, but the CPI report may be the catalyst that changes the game.
I like what I see in some oil plays, such as Northern Oil and Gas Inc. (NOG) and Kosmos Energy Ltd. (KOS) . I suspect that is a function of an anticipated Republican win on Tuesday's note and a more friendly environment for increased drilling. The charts suggest that the trend could continue to improve.
(AAPL is a holding in the Action Alerts PLUS member club . Want to be alerted before AAP buys or sells stocks? Learn more now. )