Trump’s Win and the Fed’s Rate Cut Propel the S&P 500 to New Heights
The recent U.S. presidential election outcome and a subsequent Federal Reserve rate cut have catalyzed a remarkable rally in the stock market, with the S&P 500 Index (SPX) breaking through previous resistance levels to achieve unprecedented heights. As investor sentiment reacts to these developments, opportunities are emerging in sectors such as solar power and cryptocurrency.
S&P 500 Breakout: Technical Analysis
The S&P 500 has posted two consecutive new highs, signaling a breakout with a lack of overhead resistance. From a technical perspective, the modified Bollinger Bands (mBB) are beginning to expand, with the +4
Additionally, the SPX chart depicts an “island reversal” pattern, highlighted by the gap down on October 30 and the gap up on November 6. This phenomenon created a bullish formation, which would only revert to a bearish outlook if the SPX were to dip down to 5,783, thereby closing the gap. Key support levels are presently identified around the S&P 500’s prior high of 5,870. Given the index’s previous activity, the range between 5,670 and 5,870 represents a substantial support zone.
Market Indicators and Volatility
The recent buy signal from the McMillan Volatility Band (MVB), indicated on the SPX chart with a green “B,” remains valid as market dynamics evolve. Internal market indicators have also shifted since the election; however, the equity-only put-call ratio remains constant and is currently signaling bearish conditions. This ratio has flattened in the last few days, but the computer analysis frameworks indicate the potential for higher put-call ratios, leading to bearish pressure on stock prices.
Contrarily, market breadth has shown significant improvement in the post-election landscape. The indicators, which were previously bearish, have reversed course, ushering in buy signals. The oscillators that dipped into oversold territories are now turning upwards, further reinforcing a positive outlook. New highs on the NYSE are surging past new lows, with reports of over 400 new highs, underscoring a decidedly bullish market sentiment.
Shifts in Volatility and Futures
One of the most substantial transformations post-election is observed in the volatility landscape. Options expiring shortly after the elections, which had exhibited high implied volatility throughout the year, have seen a stark decrease. The CBOE volatility indices, previously inflated by these expensive options, have sharply dropped as a result. The Volatility Index (VIX) has gapped down, establishing a new “spike peak” buy signal that is projected to remain effective for 22 trading days, unless VIX closes above its former peak of 23.42.
Furthermore, there are indications that the long-standing VIX sell signal may soon be reversed if VIX closes below its 200-day moving average (MA) for two consecutive days. The current 200-day MA stands at 15.80 and continues to rise gradually. Meanwhile, VIX futures have transitioned into a healthier, bullish structure, indicating potential upward momentum moving forward.
Investment Strategy Moving Forward
In light of these technical indicators and market shifts, we are maintaining our core bullish position while remaining agile. We are prepared to broaden our investment strategy by adding new positions around this core and could roll deeply in-the-money calls upward as market conditions evolve. The emergence of promising opportunities in solar power and cryptocurrency presents additional avenues to capitalize on the current bullish sentiment in the market.
Conclusion
The convergence of favorable political outcomes and monetary policy shifts has opened an optimistic chapter for the S&P 500 and broader equity markets. With robust technical indicators and improving market breadth, investors are encouraged to stay informed and explore the growth segments that have gained traction in the wake of recent developments. As always, vigilance and strategic flexibility will be key in harnessing opportunities in this dynamic market environment.
