This is the final full trading week before the election. I am going to take the opportunity to lay out the trends as I see them and the state of the market within the context of those trends.
Starting with equities in the US. The SPDR S&P 500 ETF (SPY) is now oversold within the context of an uptrend. Importantly, the fund is right at the near-term support level. This is what we have been waiting for. Should we change our thought process simply because there is an election next week? Maybe we should, but we are not going to. We have been looking for this setup for two weeks. Is there a risk, of course there is but that is where having a risk management process comes into play. Simply put, much as late September was a time to begin to deploy capital, now is a time to begin to further add on the long side of the portfolio. I would reevaluate this view if SPY were to move below $320. Between here and there, the trend remains up.
Under the surface, our views have become much more balanced. You may have noticed that we are talking more about Materials and Industrials. We have been highlighting the fact that small caps have been showing strength on an absolute and a relative basis. The simple fact of the matter is, the tides under the surface are shifting and there is no clear direction which way they are going…yet. This week, we will hear from over 180 companies in the S&P 500 when they release their earnings results. Included in this list will be five out of the six FAN-MAG members: FB, AMZN, MSFT, AAPL and GOOGL. This week will likely give us a clue as to the direction of the growth / value trade as well as the large cap / small cap trade. Here is the Growth / Value Ratio, continuing to consolidate above support but with waning momentum.
*This is a excerpt from the weekly note that PortfolioWise users receive every Tuesday*