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Market Waiting For Stimulus - Stocks Will Drop If No Agreement Friday

Posted by Pete Stolcers on October 22

Posted 9:30 AM ET – Investors have patiently been waiting for a pre-election stimulus bill and if it doesn’t happen by the close Friday, it will have to wait until after the election results are known. The Senate will confirm Amy Coney Barrett next week and that will sour the negotiations. I believe the only thing keeping the market afloat is the prospect of a pre-election deal. Asset Managers are reducing risk ahead of the election and that is reflected in the recent market pullback. I believe that the SPY 50-day moving average will be tested this week.

The market has been treading water in hopes of a deal and that bid is starting to soften as the deadline approaches. Stocks typically rally into earnings season and that is also keeping the market afloat. Both of these bullish influences are gradually getting overpowered by profit taking.

The election is only 12 days away and mail-in voting could prevent us from knowing the outcome for weeks. I view this as the greatest market risk. This would delay a stimulus bill and civil unrest would escalate.

Tech giants will post results next week and profits should be excellent. They have not been hampered by the Coronavirus and in some cases they have benefited from it. Profits are expected to decline 20% in Q3 on a year-over-year basis. At a current P/E of 23, stocks are rich.

The Coronavirus is spreading domestically and major metropolitan areas are back in shutdown mode. The same is happening in Europe. I’ve been reading that vitamin D dramatically reduces your chances of getting sick so make sure to add it to your diet.

The economic news has been decent. This morning we learned that 787,000 new people filed for unemployment benefits and that is a considerable drop from last week (898,000).

Swing traders should remain in cash. Wait for clarity and market direction before taking new positions.

Day traders should expect big intraday swings. I am trimming my size because of this “newsy” environment. One minute the market drops and the next minute it spikes on rumors that a deal is close. I believe this noise will end Friday because we will either have a deal or it will be too late to come to an agreement. I have been finding good traits on both sides of the market. Earnings announcements will provide us with action.

Support is at the 50-day MA and resistance is at SPY $349.
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