Week of Nov. 2, 2020 (Election Week) - SPY

SPY

Two ideas have been drawn and both have hit the first upper ascending trend line. We have a possible Bullish Flag Continuation and Bearish Descending Triangle bias ideas.

The Bullish Flag Continuation is drawn in red and the Descending Triangle is drawn in green.

The Descending Triangle in its infancy and represents a continuation pattern. Spy is currently in a downtrend from October 12, 2020. For this pattern to qualify, there must be a breakdown of the support line.

There needs to be at least two or more touches on the horizontal line. However, the lows do not have to be exact, but should be within reasonable proximity of each other.

Also, at least two or more touches are required to form the upper descending trend line. If a more recent reaction high is equal to or greater than the previous reaction high, then the descending triangle is not valid (the price should go down diagonally).

Generally, the duration of a descending triangle can be anywhere from 1-3 week or 1-3 months.

For this pattern to be valid, it must break support to confirm the breakout. The best practice is to wait at least 2-3% from breakout for confirmation.

I have extended the entrance for the shorts because it was too near to support2 and a retrace is expected. If you’d like to enter at the standar 2-3% from the breakout, do so at your own risk.

There are two different short entrance points drawn out. The first entrance is more ideal for the trader.Both short entrances are marked with a red price tag at $321.21 and the take profit is marked with a green price tag of $317.28.

About midway through the 2nd entrance I have marked a trim profit at $320.15 due to a convergence of patterns and a possible bear trap. If this pattern holds, it is recommended that you either trim profits and leave a runner for the greater fall or hedge with a call option at this point.

If we bounce around $320.15, we could have possibly hit a bear trap and were in a Bullish Flag Continuation the entire time. The pattern then would be confirmed once the price breaks the red falling support line at around $323.40.

The Bullish Flag Continuation is in its infancy and represents a bullish breakout. The Flag Continuation pattern forms through parallel lines that developed as a pullback from
an uptrend.

The rectangle develops from two trend-lines which form the support and resistance until the price breaks out. The flag will have sloping trend-lines and the slope should move in the opposite direction to the original price movement.

Once the price breaks the resistance or support line, this creates the buy/call option or sell/put option signal. The best practice is to wait at least 2-3% from breakout for confirmation. This is also a short term pattern lasting 1-4 weeks.

The length of the flagpole can be applied to the resistance break or support break of the flag to
estimate the advance or decline. I’ve used the pivot point at $329.54 to determine an exiting strategy.

As of 9:30 AM on Sunday, Nov. 1, 2020 the technical analysts summary on the one day is showing a strong sell on the moving averages and neutral on the oscillators, giving us a total summary of SELL.

https://drive.google.com/file/d/1NDFXubRULmkGVxQQb2M_XkpyvZePrSyK/view?usp=sharing

Quote from: https://www.benzinga.com/etfs/broad-u-s-equity-etfs/20/10/18124816/bny-mellons-liz-young-on-upcoming-election-volatility

BNY Mellon's Liz Young on CNBC's "Halftime Report" discussed the potential volatility in the SPDR S&P 500 ETF SPY amid the presidential election next week.

"I wouldn't count out election lasting until early December," said Young. 'This is not the last bit of volatility we'll see before the end of November."

Below Snippet from: https://www.cnbc.com/2020/10/26/contested-election-what-went-down-in-markets-during-bush-gore-battle.html

The last time there was a contested presidential election, the S&P 500 and technology stocks tanked.

The presidential election of 2000 occurred amid a dotcom bubble bursting, interest rates rising and weak earnings from bellwether stocks like Apple and Bank of America.

The 2020 stock market features near-zero interest rates, and a dominant position in the S&P 500 for Apple and the tech sector more broadly.

But one thing is likely for investors: volatility.

In 2000, it took five weeks to know the outcome of the presidential race. Over that timeframe, there were recounts and court rulings that added to market volatility for the S&P 500, which fell by 7.8% from Election Day 2000 through year-end.

But it’s a mistake to view the tech selloff as an election event, according to an analysis by DataTrek Research. Concerns about tech sector profitability, interest rate hikes to combat inflation, and a slowing U.S. economy were bigger factors at that time, as big names like Apple and Bank of America disappointed investors on earnings in Q4 2000.

The bursting of the dot com bubble was the biggest headwind for the S&P 500 in Q4 2000. In 2020, it may be better to watch another segment of the market closely in a contested election period: the Russell 2000.

https://drive.google.com/file/d/15Jokk308YF_mjxQfMWPar-cgs9q80yVx/view?usp=sharing

The Russell outperformed the S&P from Election Day 2000 through year-end, declining by 4.4% versus an S&P 500 drop of 7.8%. And from the court’s decision on December 12 through year-end, the Russell was up 1.2%and the S&P was down 3.7%.

A pro-business incoming president likely helped small-caps given their outsized exposure to U.S. economic growth versus large-caps. The S&P 500′s gains were also more muted heading into year-end than the Russell amid its greater tech weighting and the overhang of weak fundamentals for that sector.

With Biden’s planned corporate tax hikes, I can see a hefty sell-off if he is elected president.

A Trump versus Biden contested election result could favor more defensive plays until a winner is known, but likely as a compounding effect on the current Covid-related macroeconomic backdrop. In the current market, it’s been renewable energy stocks, not oil and gas stocks, which have boomed since the March bottom.

In the end, the question isn’t which stocks — whether tech stocks, or any stocks — might tank amid election squabbling. It’s what stocks to buy after market volatility takes its toll to gain the quickest rebound in the U.S. market.

Think small, according to DataTrek.

“Small caps should outperform from a contested 2020 outcome like they did in 2000, especially if Congress passes more fiscal stimulus to help spur U.S. consumer spending given their outsized exposure to the US economy,” said Jessica Rabe, DataTrek co-founder.

If an outright cleat winner is not called on election night I believe the SPY sentiment will be bearish, especially when the inevitable Trump tweet occurs.

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Updated trendlines.

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