Stock Market Pushes Higher As Election Heats Up

Sloppy trading last week turned into a hot run higher this week as the midterm elections – good or bad – fueled excitement across the stock market.

Mixed price action turned positive in all three major indexes today, and traders are holding on for a continued run after election results are tallied.

But how will the market react the morning after an historic national election?

Stock market, prices heat up during election

Sloppy price action last week pushed the market into a reset of intraday momentum and a cooling of excess buying, according to Sam Shames, Vice President of Options at Simpler Trading.

Sam sees this as a positive signal for the stock market, but any conclusive assessment will require more information as the activity plays out.

He is watching the hourly 200-day simple moving average (SMA) on the S&P 500 (SPX), the hourly 200-day SMA on the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), and the price of Apple, Inc. (AAPL).

Through last week these signals held in the SPX and HYG while AAPL didn’t. The SPX closed higher today, HYG was down slightly, and AAPL was up by .42%.

Apple, Inc. (AAPL), considered a bellwether stock by Simpler’s traders, has been sporadic this year and its strength tempered recently from news it would slow production of its latest smartphone release. AAPL closed at $139.50 today, down from $155.74 on Oct. 28.

“AAPL is the last mega cap stock left standing and is now taking fire,” Sam said. “Monthly squeeze has heavy bear connotations and implies a test of $107. AAPL is the key to the game.”

Key signals this week: dollar, bonds, tech, SPX

Price started this week above the hourly 200-day SMA, which was severely tested and retested last week, but was below the hourly 50-day SMA, Sam noted.

“The way I see this is that above the hourly 50 bulls have momentum and structure,” Sam said. “Below the hourly 50, but above the hourly 200, bulls only have a neutral/sideways structure.”

In the market today, the Dow closed at 33,160.83 points to spike 1.02% (adding 333.83 points on the day). The Nasdaq rallied to 10,616.20 points for a .49% gain while the S&P 500 bounced higher by .56% to 3,828.11 points.

Sam is also watching U.S. Treasury notes and key technology stocks this week.

“If bonds can pause or even rally soon, that will help balance out the problem child of the market which is tech, specifically FAANG stocks, which are being destroyed,” Sam said.

FAANG stocks refer to high valuation technology companies that are significant players in all three major indexes and include Facebook parent META Platforms, Inc., Amazon.com, Inc., Apple, Inc., Netflix, Inc., and Google parent Alphabet, Inc. This group has lost its years-long luster amidst higher inflation and worldwide economic struggles.

Sam is looking for how these signals play out this week:

• Dollar needs to drop
• Bonds need to pause
• Tech will stabilize
• SPX can rally

“If these things do not occur and/or the hourly 200 on SPX breaks, the entire setup is

invalidated and the market would revert back to the primary modality of bear trend,” Sam said.

More outside influences could hit market

Sam highlighted lack of conviction among market participants impacting price action.

“Markets overall are more illiquid than we know,” Sam said. This dynamic cuts both ways up and down as it’s more difficult to rebalance large books with this low liquidity.”

More outside influences for the stock market are ahead with the U.S. Consumer Price Index (CPI) report on Thursday and University of Michigan Consumer Sentiment Index on Friday.

Sam plans to continue focusing on day trading strategies until a longer, more sustained trend develops in the stock market.