Stocks sold-off yesterday as stimulus headlines suggested no progress had been made. Again, my base case has been that there will be no stimulus deal before the election and that the market will likely be led by that these headlines. However, I believe that there will be enough positive talk to keep the market afloat until after the election.
S&P 500
The S&P 500 fell by about 1.6% yesterday but managed to hold above support around 3,425. This is an important level for the index to maintain, as it acted at tough resistance before breaking out on October 8. A break of support at 3,425 could be led to a decline to the 50-day moving average around 3,400 or the next major support level at 3,340.
For the moment, I continue to think the market will see higher prices up until the election. Yesterday’s drawdown could merely be a retest of the breakout we saw on October 8.
Call volumes remained fairly strong Monday, although we did see a bit of an uptick in implied volatility, which is not surprising given the move lower in stocks. But remember, the higher the implied volatility levels go, the more expensive the pricing on call options get, which will dampen volume in the future.
10-Year
Interestingly, the bond market is not buying the stimulus deal news, with yields rising yesterday, despite the sharp drawdown in stocks.
Dollar
The dollar was weaker too. So no flight to safety, and certainly not the same panic in Treasuries or the dollar, as in equities.
Micron
Micron (NASDAQ:MU) jumped Monday by over 2% on reports that Intel (NASDAQ:INTC) would sell its NAND business. The stock tried to break out on the news, but the selling in the overall market was too great for it to overcome. Still, I think it will continue to head higher.
Western Digital
Western Digital (NASDAQ:WDC) also jumped on the news, just barely clearing resistance at $40.80, with a good chance to head back to $44.50.
AMD
AMD continues to slip, and yesterday was the first uptick in volume levels, which may suggest more sellers are coming in. Nothing changes here; $75 is the next level to watch for.
Netflix
Netflix (NASDAQ:NFLX) doesn’t have the greatest look on the chart, and the RSI is just going the wrong way. I’m beginning to wonder if that is a double top forming. I think they disappoint, as they have pulled so much growth forward. I’m looking for $495.
