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  1. Home
  2. / Investing
  3. / Stocks

The Market May Soon Also Tire of the Election Drama

The conditions for a pullback now look even stronger.
By JAMES "REV SHARK" DEPORRE
Nov 04, 2020 | 04:42 PM EST
Stocks quotes in this article: IWM

Stocks accelerated higher for the third straight day, even though no winner has yet to be named in the presidential election. There has been much talk recently about how the market was unlikely to react positively if there was no clear winner, but the buyers have hardly blinked as the drama unfolded. Rather than run for the safety of the sidelines, fear of missing out has driven a stampede of buying.

The saving grace for the bulls has been the surprisingly strong showing by Republicans in down-ballot races. They have even managed to maintain control of the Senate, which was not expected. The prospect of divided government has provided some comfort for investors that were worried about higher taxes and other policies that might create economic headwinds. It hasn't hurt that Senate Majority Leader McConnell suggested that he is working on another stimulus bill that included relief for cities and states.

The battle between Trump and Biden is going to drag out for a while, and the market may grow weary of it quickly. With the indexes now a bit extended and breadth lagging a bit today, the conditions for a pullback are now stronger.

Despite the sizable gain in the indexes, breadth was mediocre with around 4,250 gainers to 3,200 decliners. The number of new 12-month highs expanded nicely to almost 300, but volume was lacking and momentum waned as the day progressed. The Nasdaq was up around 3.85%, but small caps per the Russell 2000 fund (IWM) were close to flat. It was action driven mainly by the indexes and higher-priced stocks as fund managers went to "risk-on" mode.

This market has caught many folks by surprise but you have to wonder what the catalyst is to keep it running at this pace. The political drama is not over and it is becoming increasingly difficult to chase but the momentum is strong and trying to catch reversals in action like this is an extremely difficult task.

Have a good evening. I'll see you tomorrow.

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At the time of publication, DePorre had no position in the securities mentioned.

TAGS: Investing | Politics | Stocks | VIX | Bearish Bet

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