There’s no question we’re in the midst of the most historic presidential elections in recent memory, and its impact on Wall Street has blown even seasoned experts away. The environment is riddled with uncertainty, and what does the market hate more than anything? You guessed it: the unknown.
While the S&P 500 is still pricing in a Hillary Clinton win, Donald Trump is closing the gap, and with less than a week until Election Day there is still no clear-cut leader. This is a double whammy of uncertainty. Not only are investors unsure of who will move into the White House in January, they’re even more unsure about what the country would look like should Trump eke out a victory.
As a result, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) closed Wednesday at its lowest level since early July. Short-term support at $212-$213 has been broken, and factoring in Thursday’s loss, the ETF recorded seven down days in eight sessions.
The next level of support is technically more important to the long-term health of the chart: the 200-day moving average (the red line) currently at $208.20. The SPY has only breached that level once since March, and that was amid the two-day Brexit selloff.
If Trump wins the White House, I expect support at the 200-day to be broken at least initially before a wave of buyers comes to the rescue. On the other hand, if Clinton wins and the status quo remains intact, I expect the market would experience a relief rally as investors finally take a deep breath.
Either way, I see the market higher over the long-term. The relative strength index (RSI), which is an overbought/oversold oscillator that measures the strength of a stock versus itself, recently moved into oversold territory on the SPY for only the third time since January. The last two times that happened, the ETF was able to bounce back in the coming weeks.
This time may be different due to the looming unknown of the election. But a Clinton victory coupled with an oversold chart could lead to some big gains next week.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks and the ETF Bulletin. Earlier this year, Matt and Hilary Kramer teamed up on Breakout Stocks where Matt serves as the Co-Editor. Most recently, Matt and Hilary joined forces again. This time, they are helping individual investors make money trading ETFs. For more on their latest project, visit www.etfedgesummit.com.
