STOCKS SURGE ON PRE-ELECTION FBI ANNOUNCEMENT AS SAFE HAVEN ASSETS SLIDE -- RISING DOLLAR HURTS GOLD -- MEXICO LEADS EMERGING MARKETS HIGHER -- RISING BASE METALS BOOST AUSSIE DOLLAR -- AIRLINES LEAD TRANSPORTS IN BULLISH BREAKOUT
FBI ANNOUNCEMENT CAUSES BIG RISK-ON DAY... The Sunday afternoon FBI announcement that it was ending its Hillary Clinton email investigation with no charges caused a huge risk- on trade the day before the presidential election. Stocks have surged as much as 2% around the world. A stronger dollar, and surging stocks, pushed safe havens like gold and Treasury prices lower. Emerging markets were especially strong with big gains in Brazil, China, and Mexico. Chart 1 shows Mexico iShares (EWW) surging 5% along with the Mexican peso (on better chances for a Clinton victory). In Asia, traders sold the safe haven yen while buying the Australian Dollar. Chart 2 shows rising base metals prices (brown line) leading the Aussie Dollar higher. In the states, all eleven sectors are in the black with the biggest gainers in healthcare (biotechs), financials, cyclicals, technology, and industrials. Going into the week a number of stock indexes were testing potential support around their 200-day moving average and in short-term oversold conditions. Chart 3 shows the S&P 500 bouncing sharply off its 200-day line. Its 14-day RSI line (top of chart) bounced off oversold territory near 30. It remains to be seen if the market follows through after the election results are in. But it was certainly a good day for stocks. Also encouraging was the Volatility (VIX) Index falling back below 20. Chartwise, the biggest news came from the Dow Transports which achieved a bullish breakout.
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Chart 1
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Chart 2
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Chart 3
DOW TRANSPORTS ACHIEVE BULLISH BREAKOUT... Chart 4 shows the Dow Jones Transportation Average exceeding its spring high to reach a new high for the year. Airlines were the biggest gainers, including American Airlines (AAL), Delta (DAL), and UAL. Rail operator CSX also hit a new high for the year. Chart 5 shows the Transportation Average iShares (IYT) doing the same. The IYT/SPX relative strength ratio (top of chart) has also turned up. A strong economically-sensitive transportation group is usually a positive sign for the market.
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Chart 4
