After flat action on Monday, many market players were caught by surprise by strong "gap and run" action today. While the high likelihood of an Obama win is the reason cited by some for the action, I think it was more a combination of a number of things including the technical setup, a short squeeze and a Morgan Stanley bottom call in Europe.
Having the election close to a resolution is also a positive, but an Obama win has been well anticipated for a while now. If it doesn't happen, we are going to have some very wild action tomorrow. If Obama does win, the technical setup is ripe for some sell-the-news action.
Once again we had a big swing in the finally hour of trading, with the DJIA moving 150 points. These sudden unpredictable moves make trading very treacherous and prevent the building of bigger-size positions. One of these days we will have calmer action, but the market continues to have a very high level of emotion, and that is what makes things so whippy.
In the morning we'll have the election results to digest, and the bulls will have their work cut out to keep this rally going. While we certainly have some good upside momentum with the Nasdaq up six days in a row, this has been a "V"-shaped bounce and things are becoming extended. The bulls are acting like we will never go down again, but the overhead resistance, news flow and technical conditions are going to be increasingly challenging from here.
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