Are we ready to breakout?

End of Day Update:

It’s been a week since Trump was elected president and the market is holding up amazingly well. Today’s gains puts the S&P500 within striking distance of all-time highs.

Reality turns out to be a long way from the pre-election consensus that a surprise Trump win would roil global markets. I’m not criticising because I also assumed Trump’s win would unnerve investors. Everyone assumed it was Hillary’s election to lose and markets hate surprises. Overnight stock futures traded that way when they cratered 5% as Trump captured key swing-states, but by the time we opened Wednesday morning most of those losses vanished and we quickly traded in the green.

While Trump’s win was largely unexpected, the market likes the GOP’s more business friendly approach to governing and is why stocks reacted positively in the aftermath. One of the most powerful signals in trading is when the market does the opposite of what everyone expects. Rather than sell Trump’s surprise win, the market told us this was a buying opportunity. And the last few days of support has confirmed that signal. The question is what happens now that we are pushing up against the upper end of the summer’s trading range.

We’ve been trading sideways for months because nothing new was happening. The GOP capturing all three branches of government is definitely something new. Reforming corporate taxes is on the GOP’s agenda as is a tax holiday so corporations can repatriate their overseas cash. Both of these will boost profits and dividends, and thus stock prices. At least that is why people are in a buying mood.

We are coming up on significant resistance near 2,190 as we approach all-time highs. If we break through, expect us to keep going into year-end as underweight money managers are forced to chase. If the market cannot attract new buyers at all-time highs, demand is becoming a serious problem and that doesn’t bode well for next year. At this point I give the edge to bulls because countless headlines have been unable to break this market. When owners refuse to sell, it doesn’t matter what the headlines are.

Jani

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