De-Risking Week

They always come up with convenient reasons for a selloff.  This time its a combination of the new lockdowns in some European countries and now the AAPL earnings that disappointed.  

Are we looking in the rearview mirror again and afraid of another Coronavirus panic episode?  I don't think any investor thinks this virus will just go away, the market will eventually ignore it, because of 1) less of an unknown.  2) lower death/hospitalization rates per case, 3) coming vaccine announcements.  If the election uncertainty is resolved quickly, like it usually is, with a Democratic sweep, then you are looking at investors looking to add back longs to front run the big stimulus deal in early 2021.  

And the polls are probably much more accurate this time than in 2016, mainly because there are many fewer undecided voters so that leaves less room for polling error.  So far, there has been a big increase in voting so far in 2020, compared to 2016.  And a high voter turnout is advantageous for the Democrats, because those less likely to vote usually lean Democrat.  So I am expecting a Democratic sweep.  It also hurts Trump that the week before the election, you have a big drop in the stock market and also rising Covid cases.  It looks like a perfect storm set up for a blue wave. 

I am positive on the market now until year end, mainly because we are entering the election oversold, with strong support at SPX 3220, and with a lot of uncertainty that will be going away in November.  Also, seasonally, November is the biggest buyback month of the year, so that usually makes it a strong month for equity returns.  

And finally, we are getting some of the weak hands out of the market this week, going into the election, as I was wary of buying because of the new fast money longs that entered in early October.  With the selling this week, I expect a lot of those longs to have been stopped out or just liquidated ahead of next week's big event.  

I think investors have been holding off on going all in until after the election, for fear of a contested election and riots and chaos.  And with the virus raging across the US and Europe, people will mostly be staying home and doing what?  Their new hobby:  speculating in the stock market.  It is a dystopian version of the 1998-2000 dotcom bubble, where bad news is good news, because it leads to more government stimulus and money printing.  

Put on longs over the past couple of days, looking for a rally starting next week that should last throughout November.