Pre-Election Positioning

 This week will be mainly focused on investors getting to their pre-election level of risk, which is in many cases, lower than they're current risk profile.  I can't think there are too many investors who want to increase their current risk levels into the election.  

The big up move from the September 24 bottom up to the top on October 12 was a mixture of longs trying to buy ahead of the election on the idea of a Democratic sweep in the election leading to big fiscal spending in 2021 and massive short covering.  Looking at the CFTC COT data, there was a lot of new buying and short covering in S&P 500 and Nasdaq 100 futures over the last 3 weeks.  

And last week didn't seem to reduce much of that long positioning, so I think they will end up selling any short term positions this week and reduce risk.  Especially if SPX can break 3400 and go below last week's lows with conviction.  Just from the technical analysis I'm seeing done out there, a lot of these short term traders are bullish above 3410, and bearish below it, so its very likely that you see a stop hunt under 3400 this week to see what the bulls are made of.  I still believe there are some weak hands on the long side, even though they have been sticky buyers of dips over the last 2 weeks.  Usually the final move before the bottom is fast and causes a little mini panic before you can reverse higher.  

On the news front, the clowns in Washington DC are still trolling everyone with their optimistic talk on a stimulus deal before the election while coming up with no concrete evidence of progress.  Its all vague, and meant to pump up the stock market to seem like they are trying to make a deal, when in reality, Pelosi is holding on to all of her demands and Trump/Mnuchin just don't want to swallow their pride and completely cave in to her.  And that's even before it gets to the Senate, which is unlikely anyway to pass that chamber of Congress.  

Anyway, its all about pre-election planning this week, and that should favor the bears in the first few days.  Staying short, and waiting for the stop hunt under 3400.