S&P in the run-up to the presidential election

As one of the most followed equity indexes, S&P is a stock market index that measures the stock performance of the largest 500 listed companies in the United States. The index has recovered from its 23 March lows and despite rising US China tensions, Global Trade war and a Pandemic we are seeing the index regaining its all-time highs and marking a new one. The modest selling pressure we saw in September it should be seen in the context of cyclical bull trend. Corrections are usually good and healthy for the markets as it takes the weak hands out and brings in strong money at lower levels with commitment. As long as we have higher highs and higher lows, we have by definition bull market. The S&P chart is shown below.

The chart clearly shows that the index is starting the fourth quarter in good shape. The overall picture for the market is that we are in a bull or upward trend. The weight of the evidence confirming the analysis are the positive readings of the breadth indicators. Improving breadth indicator refers to the increased percentage of stocks moving together. With few stocks selected, the rising in September and taking the momentum to all-time highs, breadth was a major concern. It was clearly showing divergence as momentum was in select few stocks while overall breadth of market remained mute. That being said, now we see improvements and strength that price index is driven not only by large mega cap stocks, but this time we saw price movements form shares in the industrial, materials even financial sectors. As long as we have readings above 50 % of the shares above the 200 MA we are likely to stay in this bull trend.

Now, remains to follow the index in the coming period and see if we will have a double top formation and a pause before the index continues its uptrend and make a break above 3600. The first threshold we can expect is around 3400, where it is 50 days MA. The second key level is 3200 and if a breakthrough is made below it, we have a potential downside risk.

The four biggest risks that can cause a downward correction are: increased optimism, the upcoming presidential election, the level of earnings satisfaction and the delayed financial stimulus.

Based on the historical precedent, consumer sentiment should continue to improve in the run-up to the presidential election. While some of the profits may give up some of the gain, the improvement could boost the consumer spending and the economy in 2021.

The upcoming presidential election and its results have important implications for the US stock market.

• Cyclical sectors and high beta stocks tend to outperform during the election years.
• Small cap stocks and Value stocks will be more dependent on economic recovery than election tendencies
• Sectors that will be under the most political pressure this cycle are Health care, Financials and Technology.

That being said, it is very important now to identify stocks that will pass the parameters from top down approach, rotation from weakening to leading, and how will sectors play to short and medium term. 

About the author

Snezana Popovska has been in financial markets for over 12 years and has a very rich experience in the foreign exchange, Equities, Fixed income and Asset and Liabilities management. She is the only Individual in Macedonia holding some of the most coveted certificates and charters in the financial Industry. Snezana is a Chartered Market technician (CMT), CMT Association, USA and a Certified Financial technician (CFTe), International Federation of Technical Analysts.  She also possesses an ACI Dealing Certificate and a  Certified Investment advisor licence. In her professional career, She is also associated with ACI Macedonia and a member of the Educational Board of ACI Macedonia. She is a keen believer in Financial freedom through financial literacy.

In her career spanning over a decade, She has worked at major banks such as TTK Banka Ad Skopje and UNIBanka AD Skopje. She was managing the portfolio of the bank consisting of Debt Securities, Asset and Liabilities management. She has also managed the Liquidity, Interest Rate and Currency risk. She was solely responsible for All Transactions in Forex, Money Market and at the same time keeping regulatory frameworks in check.  She has managed all these activities from bottom to top in her career.

Snezana has a love for Technical analysis, besides Mountain biking and Yoga,  and believes the behavioural and psychological aspects of trading and investing can be managed with proper education and systematic trading. Snezana is frequently quoted in various leading magazines with her articles and insights on financial markets.

About the author

The SAMT invites renowned analysts from the industry to publish their content related to Technical Analysis on our BLOG.

If you would like to contribute as well, please send us a message using our contact form.