Delaying Capitulation

 SPX 3360 has been solid resistance in rally attempts the past 2 days.  SPX 3230, break even on the year, has been solid support.  But I don't see that range holding for much longer.  The longer the bulls try to hold off the flush lower towards 3130, the longer the correction will last.  Bulls are reluctant to throw in the towel because every selloff since March 23 has been met with aggressive buying and new highs, but this time is clearly different.  We had a blowoff top on September 2, so it will take time to consolidate those big gains from March to August.  The election uncertainty provides a good excuse for the consolidation. Negative catalysts are still there, in contested election and Covid second wave fears.  So we'll probably need some capitulation before the weak hands are cleared out and strong hands take the market higher. 

The eternal hope for a big fiscal stimulus package before the election has kept the market strong over the past few days, and has delayed the final bottom.  Pelosi and Mnuchin are talking everyday.  A lot of investors are still expecting a fiscal stimulus deal before November 3.  If we do get a deal in the coming days, then you can expect a short term one day pop that would be a monster short opportunity.  If a deal is going to get done, its got to happen by the end of next week because after that, its going to be campaign time and nothing will get done till after the election.

In individual stocks, I am seeing a resurgence in daytrader speculation.  There has been a plethora of pump and dumps over the past few days that was mostly absent for the past 2 months.  It shows that there is still a lot of greed out there and daytraders have not been scared by the correction.  Also, the put/call ratios are back to low levels over the past 2 trading days, after being mostly higher last week.  Investor complacency is still there, and it means we either need to scare them out with a quick plunge or wear them out with every 2-3 day rally being sold hard, until they give up on V bottom hopes.  

COT futures data also is confirming that most of the institutional money (asset managers) did not reduce their net long positions in index futures from September 15 to September 22, a period when the SPX went from 3401 to 3315.  Usually they sell on weakness, but they didn't this time.  So the bulls definitely haven't given up.

We have flat futures after the futures started selling off post Presidential debate, and coming back during European hours.  Most pundits thought it was a "train wreck", whatever that means.  Betting markets have increased the odds of Biden winning from 56% to 59%, after the debate, so overall, a slight negative for the market. 

Missed the short opportunity near SPX 3360, was waiting for a 3380 to short, and never got there.  Looks like 3380 is not going to happen before the next selloff, so if there is a bounce this week from this gap down, give it time to bounce to Thursday, I will definitely put on shorts, looking for much lower into next week.