Retail suggests that they might start shorting the markets here at the highs. All the indices seem to have fallen in bullish positioning as all are neutral and RUSSELL is the least long asset in the long assets. The crowd is still buying gold and oil.
- Frank
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RUSSELL
Small caps took off last night on a Trump victory and optimism from small business tax cuts. The Fed meets tomorrow to discuss interest rates and make another decision on monetary policy. There is nearly 100% consensus the Fed will cut by either 25 or 50 bps tomorrow which is another catalyst for the index. Price has tested resistance on the 1D timeframe and may look to retrace in the short term.
- Frank
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With Donald Trump winning the 2024 election - there are a few quick notes I wanted to share that the market will likely now focus on.
- Trump re-flation concerns: with the proposed tariffs and large expectation for government spending, it is possible that inflation does not roll over easily. This is likely why the bond market is currently seeing a sky rocket in the 10yr treasury yield
- Stock market rally: with Trump's pro business agenda, which includes looser regulations and low taxes, stock are ballooning higher today.
- Crypto boom: Going again off of the lesser regulations side, crypto is higher today as the Trump/Vance administration seems favorable towards BTC.
- Foreign affairs uncertainty: Whether you like or dislike him, Trump brings volatility and uncertainty to the global situation - which is a sensitive one as is.
- Metals selloff: I mentioned this in my livestream yesterday. Following the election of both Trump in 2016 and Biden in 2020, gold fell in price. This is likely due to the de-risking that takes place following an election getting called. The question of whether a peaceful pass of power will take place is no longer so scary, so investors move away from gold in the short term.
- Nick
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Interesting thing to keep an eye on for tomorrow (election day!)
The stock market likes divided power, and is bipartisan!
This week is going to be one of the craziest weeks of the year. With elections, to earnings, to Federal funds rates, we are in for a heavy move. Our business forecast tool is displaying lower rates in Q4 of this year, as well as a continued drop from then on to Q3 of next year.
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Now that indices have been removed from the bullish category, RUSSELL small caps remains the highest score out of them all. This was due to a bullish change by 3 points on the score from trend readings turning positive.
The put/call ratio is higher going into the election as there is more open interest on the put side than the call side through Wednesday.
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The crowd seems to be getting more attracted to the metal after its initial drop from the highs. Meanwhile, COT history suggests that smart money is getting out. You can see that after COT was reduced in late October, price peaked the next week and is now on a decline.
- Frank
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Is this a Legitimate Warning Sign?
US treasury notes are now leaning bullish as the EF scores dip into positive territory. Meanwhile, the treasury yields flew higher. Notes and yields have a negative correlation. As yields go higher, the price of the note decreases, and vice-versa.
Higher yields suggest the Fed won't be cutting as aggressively due to an anticipated period of growth. Wherever yields are heading will directly affect gold, so it's important to hear what the Fed plans to do with interest rates going forward. If they sound like 25-50 bps are too much to cut each meeting, it may cause yields to go higher/gold to go down.
- Frank
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What seemed like an unstoppable force ended up giving back weeks of gains in only a short amount of time. Yesterday was the worst day for gold in the past several months. What seems to be the cause behind the drop were clued by higher bond yields. The actual rate decision will not affect gold in the longer run, rather the Fed statement will.
It seemed that Powell was clear about cutting rates to help the jobs market - at the expense of higher inflation. If we do anticipate a period of growth, there may not be any reason to cut rates further. Spending, circulation and more jobs may bring back the inflation issue. And this could prevent the Fed from cutting rates, thus less bullish for gold.
- Frank
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Similarly to the markets rising before the Trump victory, yields may be pricing in a less dovish tone from the Fed tomorrow. Expectations are still near 100% that the Fed will cut by some amount, but maybe bonds are telling us not to expect too much easing from the Fed. Especially since inflation has not moved comfortably where analysts expected by now, we might not have the green light on consecutive interest rate cuts in 2025.
Judging by the stock market's reaction, we could be looking at a period of substantial growth. However, this type of environment often leads to more spending, higher circulation of the dollar, thus higher inflation. Entering into a period of higher growth at the cost of higher inflation is not a bad thing, but it may mean that the Fed doesn't need to cut. If there's nothing to save (jobs, GDP, consumer spending...), then there might not be a reason to ease on policy much more.
- Frank
Gold finally breaks lower after several months of upside. Major risk on sentiment has returned to the markets which alleviated all the pressure from geopolitical tensions, direction of the economy, and major uncertainty now that we have an outcome in the election. Tomorrow’s interest rate report is set to come out with a cut. Lower rates may be bullish for the metal as it suggests a weaker dollar. Yields are rising too which is likely putting pressure on gold. If price can’t hold up at support, it may look to test lower around $2,600.
- Frank
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According to betting odds - the election is still expected to be very close.
It is unlikely there will be a conclusive decision by tomorrow, but we will have to see.
S&P500 Daily Chart:
On a technical note, the S&P500 remains in a solid uptrend, and has recently pulled back to a key support level.
On a macro note, I think the US election being put behind us will be a bullish this for the market - despite the winner. The lifted uncertainty of who the president is will likely give way to strong government spending regardless, which could continue to fuel stock market performance.
Additionally, the fed still seems likely to continue cutting rates, in an economy that has remained relatively robust.
Finally, we see a strong 4th quarter rally often within the stock market, finalizing with a possible "Santa Claus rally" end of year.
I am long. Not irresponsibly so, but long.
Not financial advice. Markets will likely be very volatile over the coming weeks.
- Nick
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Smart money shows another interesting reading on positional activity. With SPX as the top bought asset, institutions may be looking for higher moves post election results. The yen is also seeing the most action out of any other asset on the list, as long positions have dumped over 12% on the currency. This is a risk-on type of sentiment that could be interpreted from selling yen.
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Gold opened higher this morning, but after a considerable drop from the the highs. The metal's score has declined going into the election with a decline in investors this week potentially due to fears of volatility or simply not wanting to trade until they see the outcome.
There is a chance that a Trump victory could bring risk sentiment back which could hurt gold's optimism going into 2025. If Harris wins, it might be more of the same for gold. This pullback from the ATH is just a profit point and a level to stall before the election results.
- Frank
TSLA Daily Chart:
We're seeing some strong reaction to this gap open support level.
Nice pullback after TSLA's strong earnings pop.
I am currently in longs, with a covered call sold against my position at 290. I will share a picture in a moment.
- Nick