Retail Investors are Back

 The return of the retail investor is the biggest change I see in the stock market in 2020.  After getting burned after the dotcom bubble burst and after the horror show of 2008, they were mostly sidelined, but the masses have re-embraced the stock market.  It has taken 20 years to get back to these levels of call option speculation, especially in momentum stocks and daytrader favorites, such as TSLA, NIO, and a fairly new entrant, PLTR, which is the hottest stock among the retail investor crowd these days.  

 The excitement over concept stocks, with questionable long term business models are popular again.  On Wednesday, as PLTR was going parabolic, it had the highest option volume of all stocks, more than TSLA, more than AAPL.  And it was mostly in calls, as these millenial investors usually only bet on stocks going up.  

There are opportunities that arise when these bettors pile into call options after a parabolic up move.  The options prices become over-inflated and the options market makers starting jacking up the premiums to make it all but impossible for these retail punters to make money buying calls.  It happened in late August, and it is happening now. 

The basic strategy in these mania markets is to wait for the retail traders to push up the prices of their favored names to extreme overbought levels, and take the other side of the trade, usually in the morning when they usually enter their trades.  That is why you see frequent big gap ups in the daytrader favorites, as they are short term players and usually buy in the morning and sell later in the day.  

A similar phenomenon happened back in the dotcom bubble, when the internet stocks made most of their gains from big gap ups, as retail traders were excited to buy in the mornings.  Playing these momentum stocks is probably safest by buying near the close and selling at the open, capturing the gap up move that usually happens in these names.  It was one of my core strategies back in the bubble days, when internet stocks would make crazy moves.  

In these kind of markets, the easier fish to catch are in the stock market, and the stock indexes trade more randomly, since there is very little fear or emotional selling in the broader indices.  Over the past week, I have been focused on individual stocks and trading what is being moved by retail.  Its much easier to beat retail traders with short time frames and rather predictable tendencies than institutional investors who have longer time frames.  

Last week did seem to finally bring that euphoric mindset on Wall St, which probably means that we'll be chopping around for the next several days, and probably have a little pullback.  But I don't expect any big down moves here, there are just too many bulls out there waiting to pounce on any weakness to buy. 

The Next TSLA

Back in the old days, it used to be retail investors buying small cap stocks looking for the next MSFT.  Of course, they don't realize that MSFT was never a small cap stock, it went public in 1986, and had an initial market cap around $700M, which would be several billion in today's dollars.  Of course split adjusted, the IPO price was in the pennies, and that's how naive investors convince themselves that buying these low dollar stocks that often got public through a reverse merger are somehow going to become the next MSFT.  Same with TSLA.  It IPO'ed in 2010, and had an initial market cap of $1.7B, so it was also never a small cap stock.  

But retail investors never let facts get in the way of a good story, or a wild imagination and far fetched dreams.  Would you want to drive a car like that pictured there? (SOLO)  Imagine getting into a car accident with a SUV with that car.  And that company traded at a billion dollar valuation a few days ago, before daytraders fled the stock after Citron Research did a quick tweet bash job.

There are tons of these EV stocks, and EV-related stocks, that have gone parabolic over the last week.  These are internet stock in 1999 type of moves that we're seeing here.  It is a stronger and deeper move than the Covid pump and dump stocks this summer.  It all feeds from the ridiculous up trend in TSLA, once it was announced that it was entering the S&P 500, which will happen on December 18 at the close.  By that time, all the index funds will be buying their TSLA shares, and it is a ton of shares, from all the front runners who have bought ahead of them and will release their inventory just when those index funds need it most.  Probably right near the top of the move.  

What I noticed about the EV plays is that most of them are Chinese stocks.  The Chinese pumpers are a step ahead here, as they are selling the most sought after shares in the retail investing universe.  These companies are looking to feed the ducks with grossly overvalued paper, which are sold to dump cash into the coffers of the company, to spend it on who knows what, anything but cash spent on generating future profits, but more likely just a piggybank for the company insiders.  The corporate governance in China is probably one of the worst in the world, so anything goes.  Just look at the Shanghai Composite 20 year returns, it is way behind the Chinese inflation rate, and performing much worse than a simple investment in Chinese government bonds.  

Anyway, there isn't much interesting happening in the macro world, as is usually the case during a strong bull market.  I will probably sell the remaining longs on Friday, and look to put on a small SPX short looking for a pullback next week.  The much talked about large pension fund selling rebalance doesn't seem to have materialized, or if it has, they've done a very good job of disguising their purchases with no market effect. 

Most of my trading focus lately has been in the EV stocks, where volatility and trading volumes are through the roof.  When retail traders are actively involved, I want to be there.  Tuesday looks to have been a short term top for the EV sector as a whole, and I expect a choppy downward move for the next several days.  Unlike the past week, gap ups in these stocks will probably be good fades for the next week or so.

Omen for 2021: the EV Bubble

I will be doing a series of blog posts in the coming months detailing signs which are an omen for a monster bull market top in 2021.  Today we'll talk a little bit about the EV bubble. 

My favorite gauge of retail investor behavior, the EV stocks, are melting up.  Bitcoin has been on fire, another retail favorite.  Speculation is about as rampant as I've ever seen since the dotcom bubble.  The EV stocks are the new internet stocks.  It doesn't matter how trashy the business model is, or how self-serving the corporate governance is, retail can't get enough of these stocks. If Robinhood were releasing their investor holdings data like they used to, I am sure that the top of the recent additions list would be all EV stocks.  

I am starting to do some deeper research into this electric vehicle sector, and my first impression is that the hype is much bigger than the actual potential earnings for these companies.  The barriers to entry for this sector is extremely low, and it is already quickly being commoditized by cheaper producers from China.  There is very little IP involved, and it actually seems like its easier to develop and manufacture electric vehicles than ordinary gasoline/diesel powered cars.  

The valuations for some of these stocks, the most obvious being TSLA, but includes a bunch of questionable Chinese EV names, like NIO, LI, XPEV, just to name a few of the larger ones.  At these levels, I am almost sure they will be at much lower prices 12 months from now, but will they be at lower prices 3 months from now?  I am not so sure about that, which is why I haven't put on any long term short positions yet, but these overvalued levels are definitely getting me interested in doing the research to pick which ones look the worst, although they all look like horrible investments from just doing basic research.  

It looks like we are building a gigantic Frankenstein with retail now believing they are invincible, along with the hedge funds, as they ravenously buy stocks at the highest valuations since the peak of the dotcom bubble.  In the meantime, China has managed to export a bunch of crappy IPOs with big time valuations in the hottest sector of them all, collecting huge amounts of USD from both institutional and retail investors.  China just may come out on top after this bubble bursts, having collected hard currency for worthless shares in what are basically wealth transfer schemes, from retail to corporate management. Same thing happened with most of the internet stocks in 2000.   

Just look up Naveen Jain of Infospace to see what a corporate predator looks like, feeding the retail ducks when they quack. 

I must admit, I didn't have enough experience to take advantage of all the opportunities on the downside after the dotcom bubble burst, in 2000.  But in 2021, I have a strong feeling that I will be given a second chance to short at the beginning of an extended bear market which will confound and demoralize late coming investors for years to come.  

One by one, the signs of a classic extended bull market top are beginning to show.  The pieces of the puzzle are coming together.  It is fascinating to see that human nature really doesn't change, no matter what the new technology is, or what the economy looks like.  Greed always rears its ugly head at the worst possible time after years and years of conditioning to buy stocks, TINA (there is no alternative), and full faith and trust in the Fed, to the extent that we've never seen before.  

The Fed created this field of dreams, and if they build it, they will come.  And they are coming fast and furious.  

Still expecting a pullback down towards the SPX 3500-3520 level, but this market is taking its time consolidating and digesting all the "good news".  My spidey senses are tingling and sensing a sharp one day selloff looming.  Don't want to short, just because of the seasonal bullish tendencies around Thanksgiving holidays, but starting next week, after the holiday is behind us, I could see a back to reality and a reduction in the froth that has built up over the last 3 weeks. 

Tide is Turning

This market looks tired.  After 3 weeks from the pre-election bottom, we have gotten to price levels and positioning targets which make this market more of a two-way market, not the one way market that it has been for this month.  That, along with the likely pension fund rebalance which is estimated to be quite large, should make it harder for this market to move higher from these levels for the rest of this month.  

The put/call ratios are showing some complacency, as they never really went up during the past 2 days when you had some downside action.  We are seeing quite a lot of speculation now in the EV space, my best indicator for retail speculative fever. It is getting a bit too hot right now, and it looks like we are due for a pullback to shake out some of these latecomers.  

We got the news after the market close that Mnuchin has requested the Fed give the money back to Treasury to reallocate funds.  This just seems like Mnuchin wants one more dip into the well to pad his slush fund and spew it out to who knows where before he leaves.  I wouldn't read into anything more than that.  The Fed emergency facilities weren't being actively used anyway, thus the large remaining funds there.  And its really not about the presence of those various BS facilities, its more about the Fed's willingness to break laws to use them.  And I'm sure Biden's Treasury secretary will be a monster dove and be very willing to break laws to spew printed dollars to all their favored special interest groups.  

I reduced my ES long position yesterday, just to be able to have more ammo to buy dips on what I expect to be a post opex move lower.  But instead of buying SPX, I am looking at the NDX as a better play.  According to Mark Hulbert of Marketwatch, growth and momentum do much better than value in December.  And based on what I am seeing on CNBC and Twitter, most people are leaning towards value, so they will be offsides if tech stocks start to outperform again.  Not interested in the short side, during this seasonally bullish time period.

Too Much Good News

A PFE pump on Nov. 9, a MRNA pump on Nov. 16, and another PFE re-pump on Nov. 18.  With all the positive vaccine news pumps coming out lately, it's become too much of a good thing.  Its made investors complacent, and the market got a little bit ahead of itself.  That PFE vaccine pump on Monday, November 6, looks like it was the short term blowoff top for this move, as the market hasn't gotten close to those highs. 

It doesn't mean there is a trend change, but there needs to be a consolidation of the big gains since October 30, and perhaps trade between SPX 3500-3630 until you get institutions willing to pay up again to get in.  Also, we need to see the market worry a little bit more about the Rona 2nd/3rd wave.  I know the permabears have been talking a lot about those spiking Rona cases lately, but I haven't seen it as much among the more mainstream market pundits.  We probably need to see some of that bad news to get prices to levels where it is worth buying. 

Europe is outperforming, and that market looks like it wants to grind higher.  Overseas markets have been trading less volatile than the US, and grinding higher.  It is a risk on environment, and the election reset did enough to purge the speculative positioning to make it safer to play the long side.  I think this uptrend continues into year end as the institutional money gradually goes from bonds to stocks.  Its late stage bull market behavior, increased volatility, ala 1998-2000, with sharp up moves and scary sharp down moves, in a wavy, uptrend pattern, until the final blow off top.  That final blow off top looks set to happen in 2021, probably when the Rona vaccine gets distributed to the masses.

I still have a partial long position on, and will look to add on dips.    Friday is opex day, so we could get a potential flush out next week on a post opex hangover.  Will be looking to buy then if the market dips down below SPX 3520.  Worst case scenario, it could go to 3420-3440, but more likely the downside will be contained to the 3480-3500 zone.  I don't think we get there, but just in case we do, I want to have the ammo to buy at those levels.

Another Vaccine Pump

 You figured that they would have known that there was going to be another good news pump on Moderna vaccine news today, but there are still a lot of non believers out there.  Not of the vaccines, but of this rally where the market is steadily going higher as the number of coronavirus cases skyrockets in the US and Europe.  

There are STILL a lot of investors that are fearful of exploding Covid cases and lockdowns.  Lockdown is such a scary word to these people, who think that the stock market can't go up if bars and restaurants are closed.  Its almost as if these investors think the economy is dependent on people going out to eat and drink.  No, people can eat and drink at home, and with the savings that they accumulate from not going out, they can use that to buy stocks.  How about that logic?  

There was news last week that the amount of inflows into equity funds was the most since a couple of years ago.  That is the kind of news that matters to the market, not the number of coronavirus cases.  The stock market is about supply and demand, and when you are in peak buyback season, and also have a huge amount of money coming in these days after holding back due to the election fears, that is a simple formula for higher prices.  

Let's not make this job harder than it is.  Let's not look at what happened in March when virus was raging out of control and think this is a repeat of that.  Now, with hope from the vaccines, which are being pumped as a silver bullet, the market sees the end of the tunnel when it comes to the Rona and that's all it needs to know.  The stock market doesn't care about deaths, or numbers of people getting ill, it only cares about who is the more eager side, the buyers or the sellers?  And its shown since the election that the buyers are much more eager to get in than than the sellers are to get out.  

I am staying long here, might get a little pullback in the morning off the big gap up, but expecting a grind higher into November opex, on Friday.  Not interested in the short side, and after I sell longs, will look to buy dips. 

Rona Wall of Worry

Its the news that the short term bears can always point to.  It's red meat for stock market bears.  The exploding number of coronavirus cases in the US and Europe.  The fear of lockdowns.  It takes a giant rear view mirror to see all the way back to March.  Its the bear's time machine, back to the good old days of March.  It lasted for all of 1 month, but it has left a deep imprint on a large subset of investors, who can't fathom investing in stocks when the economy is so bad. 

I was one of those stock market bears, and I nearly got killed shorting from 2900 holding it all the way up past 3200, on leverage, barely able to wiggle my way out of it by covering on one of those fleeting, but scary dips that looking back, were great buying opportunities.  Bearish at 2900, and bullish at 3550.  LOL.  

I know it seems ridiculous, to be bearish in May at 2900, and then be bullish just 6 months later at 3550, but you have to trade the market that is, not the market that you want.  

The move last week, from SPX 3270 to 3510, over 5 trading days, was a big clue, as to where the market wanted to go.  And that is higher.  Throw out the extreme day to day volatility, which just clouds the longer term picture, and see the forest, not the trees.  With record numbers of coronavirus cases, and what would seem to be horrible news in Europe from the lockdowns, you have the Eurostoxx outperforming the SPX handily, another big sign that its not just the US that is strong now, Europe has joined the party.  So much bad news on the virus, yet so strong of a stock market.  That is flat out bullish.

There is immense underlying strength and risk appetite to buy equities, small cap, large cap, value, growth, international, etc.  And the key is that the election last week, was the big barrier that kept that eager money on the sidelines waiting for the uncertainty to clear, before they put in lots of capital into the stock market.  And the fund flows since last week show that there was a huge influx of money going into equity funds.  While that would often be a contrarian indicator, this time, with so much in equity fund outflows year to date, its just a sign that investors are looking to put money back to work now that the big feared event, the election, is behind us.  The motivated money is looking to buy, not sell, and that usually leads to higher prices.  

I am just playing the money flow game, and not even thinking about the overvaluation, which is extreme.  If all I looked at were the fundamentals, I would be short all the time.  But I am not playing in those very long term time frames, I am looking to catch moves over a few weeks, not a few months or years.  And the coronavirus wall of worry is what the market is climbing, and it can do so until we get to truly excessive valuations and much better economic data, neither of which are likely to happen this year.  

Staying long SPX I bought on Tuesday, and sold some Treasuries bought earlier this week.  

So Many Value Contrarians

 It's fashionable to be a value investor these days.  You would think that Nasdaq stocks were performing horribly and small cap stocks were doing great all year when you see so many "experts" come out and tout value stocks, and opine on how overbought and overvalued tech stocks are.  Here is the YTD chart for the NDX and the Russell 2000 (RUT):

The NDX is up 33% YTD, and the RUT is up 4%.  Only in the past few days have you seen a big divergence, and it is well chronicled, and the new fast money trade is to buy the Russell and short the Nasdaq, the opposite of what was working all year until this week.  

Suddenly, some positive vaccine news and the market is starting to price a hot economy, selling off bonds and bidding up financials and energy stocks.  If I had a dime for every time someone on Twitter argued for value over growth, and a dollar for every time someone on Twitter argued for growth over value, I'd have a lot more dimes than dollars.  And that's not just recently, its been like that for months.  The value bulls are much louder than the growth bulls. 

Just because you are buying beaten up stocks and underperformers doesn't make you contrarian.  Often times the contrarian trade is to ride the big up trend while skeptics say its gone too far.  This is one of those times. 

I am no raging Nasdaq bull, but if I had to choose between buying the NDX and the RUT at today's prices for the rest of the year, I would choose the NDX.  

The people on CNBC almost uniformly are bullish on the value stocks, the cyclicals, and not so bullish on what has been working all year until this week, the tech stocks.  At this point, most fund managers' base case is for a cyclical economic recovery in 2021 with fiscal stimulus and vaccine news pumping stocks higher.  

Because of the amount of risk reduction in a lot of portfolios ahead of the election, there is still some money to be deployed by fund managers who decided to wait till after they got some certainty on the election to buy stocks.  So that's what will drive stocks higher over the coming weeks, not this new found optimism about vaccines leading to a quick reopening of the economy.  That is why I bought a partial long SPX position yesterday after I sold on Monday.  

The post-election money flows are going to be a bullish factor for a few more weeks, so I want to ride that wave higher.  But its not because suddenly the economy will look great in 2021 because of the vaccines, its purely a trade based on inflows. 

I also have started an intermediate term position going long Treasuries, as 10 year yields are close to strong psychological resistance at 1.0% and 30 year yields at 1.8%.  I don't expect any kind of meaningful rise in interest rates like you saw after the 2016 election.  The Fed has a totally different mentality about rates than 4 years ago.  Its a transitional time for the US bond market, from going from the old normal of rate increases to fight inflation to the new normal of reducing/stopping QE to fight inflation.  

The US bond market is well on its way to follow the Japanese and European bond markets, perpetual ZIRP/NIRP, with only changes to QE acting as a tightening/loosening mechanism.  With the dependence on low rates to maintain economic growth and the sheer amount of debt outstanding, they just won't be able to raise rates without crushing the financial economy, which is all they care about.  So the era of interest rate changes in US monetary policy is basically over, in my view.

Rona Vaccine Pump

 You knew this was coming.  The vaccine pump.  It was about as well telegraphed as the Trump election fraud speech last week.  But the market is still going bananas over it.  Its not the news that's important, its the reaction to the news.  Another trading maxim that has a lot of truth to it. 

And despite what I would consider expected news, we still got an absolutely monster gap up and pump on the announcement.  This after 4 straight huge up days last week.  The crowd wants to speculate on stocks.  They were just holding their fire until after the election was over.  Now that it's over, the ammo is oozing out in torrents of gunfire.  The speculators are coming out and buying up as much beta as they can before the next guy feels the FOMO.  

In the old days, they just called it greed.  I guess FOMO is just greed with immediate urgency.

The FOMO is more contagious than the Rona.  This is stock market that we have.  Its not your old bull market, this is your FOMO bull market and it doesn't trade the same as you would expect it to trade like it did from 2009 to 2019.  The moves are quicker, sharper, and the drawdowns are quick and nasty.  

Instead of having a stairways pattern of upmoves and flat consolidations, you are having waves of ups and down which eventually lead to higher and higher prices, as the up waves are stronger than the down waves.  

You just have to ride the waves up and down, eventually it goes higher, its riding the bubble.  It will end badly, but probably not until the economy is "good".  Sold a lot on Friday unfortunately, but still have some longs and will hold for much higher prices.

Sticky Vol

This volatility isn't calming down.  It's off the hook.  Usually after such a huge rally after a big event, the VIX would plummet and stay down.  But it's not staying down.  Its bouncing back up, and bouncing off of high levels.  It bottomed at 26 yesterday.   The October 12 top saw VIX just barely get to 25 before exploding higher.   That was understandable, as VIX was juiced higher because of the election.  But now?  

Some of these moves in the overnight market are obscene, stuff you would think that would happen after the market is down 10% and in a steep downtrend.  Its happening after 4 straight strong up days, all of which had intense up and down moves during the regular trading hours.  

I don't think its because Trump isn't conceding or screaming fraud.   Its not because of the second wave of coronavirus.   Its just a new market, an overvalued market that doesn't have a strong valuation base to stabilize it.  Like a 1999-2000.  I keep coming back to that dotcom bubble era, because the stratification of strength in the market is as extreme as back then, when tech stocks were bubbling higher while the small caps were going nowhere.  

In the late 90s, the market was in a strong bull phase but so was volatility.  Volatility fluctuated around 20 to 30 for most of that time.  Now in 2020 after the crash, we are fluctuating mostly in a band from 25 to 40.  Back in 2017, volatility was fluctuating from 9 to 15.  Market is almost 3 times as volatile as 2017!

Its not a healthy bull market for the long term.  In the short-intermediate term, from a few weeks to a few months, we can definitely go higher, but all that will do is setup a spectacular fall when the fundamentals come to bear.   No organic growth, total dependence on loose monetary and fiscal policy, and a ballooning budget deficit and overall national debt level that will begin to pressure the dollar lower, and eventually take away reserve currency status.  And those sold out politicians in Washington DC either don't care or don't think its a long term problem.  

I am still long, but I know I am just playing a game of musical chairs, so I always keep an eye out for too much froth and optimism.  From my observations of traders on social media, I just don't see the enthusiasm that one would normally expect after such a monster 4 day rally.  The bond yields are staying low, which is key.  I still see too many analysts on CNBC tout value over growth.  That tells me this Nasdaq bubble still has a long way to go.  

And its the Nasdaq stocks that will take this market higher, not small caps.  Bad breadth is not a sign of overall market weakness, as the Fintwit "experts" think, but a sign that the crowd hasn't bought into the rally.  Once the small caps start outperforming for a few weeks straight, then you will know that there isn't much time left for stocks to keep going up.  We are nowhere near that point. 

Monster Relief Rally

The market hates uncertainty.  Not just the stock market.   Also the bond market.  People hold bonds too, and they also have market risk.  Investors were coming up with all sorts of nonrelevant (in my view) reasons why the market fell so much last week, mainly the Covid 2nd wave and associated lockdowns and the lack of a fiscal stimulus deal.  Well, nothing has changed on those 2 items, yet the market is screaming higher.  I heard very little about the main reason I think markets were weak last week: the election.

The 'Rona is just not a market mover anymore.  It is too much of a well known variable, and most of the assumptions are pessimistic for the short to intermediate term.  We've had lockdowns and the markets went up.  The stock market isn't scared of a partial lockdown.  Closing down bars and restaurants just isn't that big of a deal.  So there is nothing worse to price in for that variable.  Its not really much of a variable anymore.  

To a lesser extent, fiscal stimulus is also becoming a more well known variable.  We will get a fiscal stimulus, its just a matter of size.  And I don't care how much McConnell and his crew talk about too much debt and too much money, this isn't 2010, or 2012.  It's a totally different environment for government spending, and it is embraced by both sides, although Republicans will pretend like they care about the deficit, when they really don't.  And especially because the masses don't care.  

So if those two variables are not really moving the market, then it has to be the most feared event of 2020, and probably the last 4 years.  The 2020 US election.  When you have brokerage firms raising margin requirements to prepare for volatile markets due to that event, and well ahead of time, you now you have a much feared event.  And that event is what has dominated trading flows for the past 3 weeks.  After the event, its a huge sense of relief for the market, and that means higher prices.

And even though we still haven't had an official Presidential winner declared, its looking like Biden with very high probability.  And that certainty is what is feeding the market higher.  Even when you probably had the worse case outcome of a Biden win and a Republican Senate, the market just isn't going to get down to the minutiae at the moment, its just relieved that there isn't a contested election, or mass riots, like some doomsdayers were predicting.  

The fact that we are getting such a huge rally despite there still not being a declared winner for President shows you the underlying buying pressure in this market.  You've got gridlock in Washington which is a huge sigh of relief for bond investors, and bonds are screaming higher along with stocks.  That's about as bullish a scenario as you can get.  Despite what the five minute macro experts tell you on Twitter, stock market rallies last a lot longer when they are accompanied by a strong bond market. 

Lastly, I've seen this sh*t so many times, being the bear that I am, getting my face ripped of on V bounces, over and over, that I finally learned my lesson.  9 times out of 10, the dips will be bought and act as a springboard for big rallies so I'm just playing that game.  Fundamentals will matter in another time.  Not now.  Sometimes its just as simple as buying a decent dip and just hanging on for the ride back up.

A Close Election and Event Trading

Biggest takeway from the event of the day was how inaccurate the polls were.  These are absurd misses by pollsters, with Trump outperforming the polls by a  lot in almost every state.  Rather than shy Trump voters, I just don't think Trump voters like taking polls.  They were underrepresented in 2016 and even more in 2020!  

Biden is a weak candidate, hardly better than Clinton, and he picked an unpopular vice president.  His only advantage over Clinton is that he is male.  Trump did everything to sabotage himself, refusing to budge and agree to Pelosi's demands for a big stimulus, which probably would have been enough to make him the winner.  

Looking at the results so far, with lots of mail in votes remaining in the swing states, and Biden closing in on Trump, it looks like Biden will probably squeak by with a narrow victory.  He had this election on a silver platter, with the coronavirus raging across the US and the economy in the crapper, but he's barely ahead.  

Its clear that the mainstream media is losing its influence on the voting public, even though Trump is an easy target with all his character flaws, the Trump bashing is nonstop.  Even though I am no Trump fan, its clear that the major networks except Republican dominated Fox want Trump to lose.

The Democrats should have dominated this election, with the spending advantage, the news coverage advantage, and with the unpopularity of Trump among independents, but it looks like they will barely take the White House.  And be unable to take the Senate.

Looking at the market reaction overnight, you could tell a few things that one can logically deduce.  I wrote about this over 10 years ago on a blog post called event days.

Basically what happens is that many traders and investors, usually holding a long position, either reduce the size of their position or hedge it buying puts or selling futures, ahead of the event.  Many of them are fast money, meaning that they get in and out often, and have an inordinate amount of influence on the short term direction of the market.  Ahead of the event, starting from anywhere from 2-3 weeks prior, to a few days ahead of the event, they are net sellers.  When only a few days are left ahead of the event, they are mostly finished with their risk reduction and that lifting of the selling pressure and absence of fast money sellers lifts the market higher into the event.  

After the event is over, the demand to buy stocks/bonds/other financial assets is much greater than the supply to sell at that time, especially among the fast money.  And that's why you usually get a move higher after the event is over.  The greater the fear and media coverage of the event, the bigger the pre-event selling , and the post-event buying.  

This phenomena was the main reason I got long late last week.  Last week's flush out induced a lot of put activity, similar to the late June and late September bottoms, which produced multi week rallies.  So last week seems like a short term bottom and in a strong market like this, those can usually produce good rallies that last anywhere from 1 week to 2-3 months.  

Having a Democrat in the White House with a Republican Senate probably means the fiscal stimulus deal will be much smaller than many were anticipating ahead of the election, but at this point, that's so far away from the market's thinking and I can tell investors are just breathing a huge sigh of relief that the election is over and volatility can calm down again, which probably brings in more buyers, especially the vol targeting funds.  

Today is what happens when you remove a huge amount of uncertainty from the market.   One for the memory bank.

Election > Rona

For the market, the election is a much more important event than the ongoing Corona 2nd wave.  France, Germany, and now UK has gone back into partial lockdowns, but its not really as scary as the headlines make it.  Closing bars and restaurants that were probably either losing money or barely breaking even under the reduced customer traffic having to close down isn't a negative.  It probably is a net positive for small businesses to be able to receive government bailouts while they are closed instead of struggling to make money under bad conditions.  

And if this year taught us anything, its not the economy that really matters, its the reaction to the economy from the government and central banks that matter.  And this 2nd wave assures that the ECB and the Fed will probably be pulling out even more ammunition in December, and then if we get a Democrat sweep like the betting markets are forecasting, then you'll get that big fiscal stimulus which will be front run by the markets.  

While I was wrong about how far up we would go from the March bottom, that move was a strong signal that there was a lot of underlying buying power in stocks, and a crowd that was looking to speculate and take risk.  At an extreme, that can lead to a long term top, but when it is at a moderate level and rising, stocks usually go higher.  The last 2 months after the early September top have decreased investor speculation and optimism enough so that this market has room to go back up for 2-3 months without positioning getting too long.  

The somewhat panicky selling that occurred Friday after AAPL and other tech earnings disappointments may have been the final dump before the event.  With the election uncertainly likely to be gone by Wednesday, a market that is prone to speculation and a crowd that is now looking to buy means that we should be seeing a lot of risk being put on after the election results come out, no matter the outcome.  Of course, a definitive victory for the Democrats would be a more risk positive outcome because it all but guarantees a huge stimulus package when Biden gets into office, but even a Trump win would still mean a lot of stimulus would get passed, as even with Trump in office, Congressional Democrats will be looking to spend.  

Really the only black swan would be a contested election where the race is very tight, but I give that very low odds just because of the big lead that Biden has, and even if Trump declares victory when the outcome has yet to be decided, the market will see right through it and wait for the results to confirm either way.  

The amount of angst over this election seems greater than what I've seen in any election, including 2016, which really doesn't make much sense because this election from a polling perspective is the most lopsided one since 1996, and probably the most predictable.  We'll soon find out in 2 days.  

Put on longs late last week, and will hold it for a while.