Bear Time Window is Closing

 There is a sweet spot of bearish activity going into a much anticipated event.  That sweet spot is usually 1-3 weeks ahead of the event.  Investors just don't wait till the last minute to hedge or reduce risk ahead of a big event like a Presidential election, so if they do sell or buy puts, it will be during this time period.  

This selling pressure is what has been bringing the market steadily lower since the local top in SPX on October 12.   Almost 2 weeks have passed since then, and the market just hasn't made a big pullback since.  Given that there is still more than a week ahead of the election, there is still a little bit of time for the sellers to get to work and for investors to get a bit more nervous, but I give it 3 trading days, or until next Tuesday before you have to lean bullish.  

Its a tricky moment to be bearish here, the time window for further weakness is at most 3 days, and there is a small possibility that yesterday was the bottom before you grind higher into the election.  But given yesterday's rally, the SPX around 3460 is kind of a neutral zone, it doesn't have that much room to squeeze higher over the next 3 days due to election uncertainty but stocks have been hanging tough and bulls have been tenaciously defending support levels and aggressively buying dips.  

Perhaps its the hopes of a stimulus bill getting passed before the election that is keeping the bulls active on these intraday dip.  If that is the main reason, I see a potential final selloff that breaks SPX 3400 if there is no deal by next Monday which scares out the fast money traders, possibly getting down to 3360, the gap left behind after the Trump flip flop on stimulus 2 weeks ago.  

I am no political expert, but I have seen quite a few of these political "negotiations".  And usually they end up with a deal, but this time, its not something that is a foregone conclusion like raising the debt ceiling or even the fiscal cliff.  And the behavior is quite different.  The main person who will decide is Pelosi, and she seems too optimistic but acts really slow.  Taking her time, and not putting any pressure on the other side.  Its a bunch of happy talk, but she doesn't budge and compromise.  No wonder the Senate Republicans hate Mnuchin, because he's basically caving in at every moment, trying to keep the stock market up while agreeing to everything that Pelosi wants.  

And does the top Democrat, Pelosi, really want to give Trump a big boost ahead of the election by signing off on a huge stimulus bill?  Maybe she does, if she thinks it will help keep her as Speaker of the House for much longer, because which ever party wins the White House in 2020, usually loses a bunch of Congressional seats in 2022.  

What usually happens if these politicians really want a deal is that they sound really pessimistic, almost as if they are willing to walk away, to put pressure on the other side to cave in, and then make a deal.  This time, the words of optimism don't match the turtle like actions.  And time is running short, there are only 11 days left till the election, so if they keep doing this next week without concrete actions, the market will see right through it and assume there won't be a deal before the election.  

One thing that is helping me stay bearish is the weakness in bonds and the Nasdaq stocks lagging the market.  Nasdaq is the leader, not the SPX.  If the Nasdaq is lagging, the SPX will have a hard time sustaining a rally.  And with Treasuries acting this weak, its got to be putting some pressure on fund managers here ahead of the election, making them reluctant to buy stocks as they are losing on their bonds.   Staying short, but maybe just a few more days.