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S&P 500, Nasdaq Outlook: Stocks Stabilize After Trump Covid Sell-Off

S&P 500, Nasdaq Talking Points:

  • News of President Trump’s positive Covid test provided a quick jolt of volatility last night.
  • The immediate response was one of weakness and, to be sure, bearish context does remain around US equities, to a degree. But, so far, that quick jolt is lacking for follow-through, even after a disappointing NFP report.
  • The election is now about a month away so we’re likely in for some volatility-driving headlines in the near-term, such as we saw last night.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.
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If you’re reading this you’ve probably already heard the news that US President Donald Trump and First Lady Melania Trump have tested positive for Covid-19. The immediate market response appeared to be a quick grab of risk aversion, and eight hours later a bit of that continues to hang around. But – so far – US stocks are relatively stable; and this is with the knowledge of this morning’s NFP report, which was pretty underwhelming given that we saw +661k jobs added versus an expectation of +850k.

But – 661,000 jobs added in a month isn’t bad – especially as the country continues to fight an ongoing pandemic. And on the bigger question of what Trump’s recent Covid test means to markets or how market participants might price-in an item that could possibly temper the campaign’s message against the virus remains. Given this week’s price action, there may be some usable signals to incorporate into the equation for investors.

In the S&P 500, there is bearish context. The index recently built into a rising wedge pattern with a key spot of resistance helping to hold the highs. Such patterns will often be approached with the aim of bearish reversals, just as we discuss in DailyFX Education. Last night’s bearish move, driven by news of Trump’s positive test, brought a downside break through that pattern. The problem – an utter lack of follow-through as support held the lows above the Thursday morning swing-low and as US equities open for business today buyers appear to be trying to take advantage of that dip.

This indicates that at our current juncture – permabears may not have the ammunition that they need to re-test the September swing lows. Bulls aren’t out of the woods yet and that case will remain until the 3400 level is taken out in SPX.

S&P 500 Four-Hour Price Chart: Bearish Context, but Sellers Lacking Conviction

SPX500 Four Hour Price Chart

Chart prepared by James Stanley; SPX500 on Tradingview

Nasdaq Holding at Key Resistance

The Nasdaq 100 re-engaged with a key zone of resistance yesterday. Last night’s news merely helped to push prices off of that resistance. But – so far today, buyers have come back to hold the index above that prior swing-low; and even with the context of a poor NFP report prices have begun to push-higher.

Nasdaq 100 Eight-Hour Price Chart

Nasdaq 100 Eight Hour Price Chart

Chart prepared by James Stanley; Nasdaq 100 on Tradingview

Elections and Market Impact

The bigger question here and this is something that’s going to continue to be heavily debated as the election gets closer: But how will a Trump win impact equities versus a Biden win? There seems to be great debate with a general sense that the Democratic challenger will usher in a wave of changes and policy shifts that threatens to unsettle the current bullish theme.

But, perhaps the bigger takeaway from this week was Biden openly shifting from the left-leaning side of the party and, in essence, denouncing support for the Green New Deal. It is perhaps not a coincidence that one of the better performing sectors in the aftermath of the debate was healthcare; as a Democratic President would create a shift there. Check out the chart of the ETF of ‘ITB’ as indication of this theme, which gapped-up yesterday and continued to push up to a fresh all-time-high.

So, we may be in an odd scenario where the Federal Reserve and Treasury department are perhaps bigger factors to follow for market participants.

— Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX