OVERVIEW
How To Handle This Election Cycle

Today, markets are on high alert as Americans cast their votes, marking the end of a unique and dramatic U.S. election cycle. The outcome could set a new course for taxes, trade, and overall economic policy, with each candidate offering a distinctly different vision. Investors are closely watching for how either a Trump or Harris administration might influence market sentiment—and they’re bracing for potential short-term turbulence before things settle.

Wall Street has already seen the effects of a "Trump trade," where investors bet on a boost to share prices, Treasury yields, and the dollar if Trump wins. His proposed import tariffs, if enacted, could drive inflationary pressures that might lead the Federal Reserve to ease up on future rate cuts. On the other hand, a Harris win is expected to mean fewer drastic shifts in policy, leaving the current landscape mostly unchanged.

Meanwhile, recent economic data—like last week’s weaker-than-expected jobs report—has raised expectations for a Fed rate cut in Thursday’s decision. Ultimately, this is what markets are truly focused on.

So, what does all of this mean for us traders?

With the election today, the S&P 500 (a proxy for the broad market) is likely to experience some initial uncertainty. Historically, the market has seen slight dips immediately following Election Day, with average returns around -0.3% the next day and -0.8% by the end of the first week. This reflects the initial adjustment period as investors digest the election outcome and its potential policy implications.

Adding to the potential turbulence, the Federal Reserve’s rate decision just two days later is expected to impact markets further. Markets are leaning toward a 25-basis-point rate cut, and the Fed's stance will play a critical role in shaping near-term sentiment.

In the short term, we might see some choppiness as these two major events unfold. However, looking at past elections, the S&P 500 tends to recover and strengthen over the longer term. Historically, one month after an election, the S&P has averaged a gain of around 2.4%, and by year-end, it has shown a median increase of about 4%. While there are always exceptions—like 2008 and 2000, which faced economic headwinds—years like 2016 and 2020 saw strong post-election rallies as markets gained confidence in the policy environment.

What all of this shows is that any volatility around elections tends to be short-lived. If you see some wild swings up or down in the coming days, don't panic. It's best to let the dust settle as emotions cool off. Political headlines might make a lot of noise, but market fundamentals are what really matter in the long run. The stock market doesn’t focus on who’s in office as much as it does on core factors like company earnings, interest rates, and overall economic stability. So while we might experience some temporary choppiness, the bigger picture usually comes back to fundamentals, which tend to drive market performance well beyond the election cycle.

Nasdaq

The Nasdaq is holding steady so far, with today marking the third session in a row that it’s maintained support around the crucial $484 level. This area is especially significant as it aligns with both the point of control (POC) and the rising 50-day EMA, making it a key level that buyers have successfully defended. Looking at the visible range volume profile, we can see just how much trading volume has accumulated in this zone, showing strong interest from buyers.

Our outlook remains similar to before: the main goal here is for the Nasdaq to hold above $484, consolidating between the 50-EMA and the declining 10- and 20-day EMAs. Ideally, we'd like to see this area tighten up, creating a solid base ahead of the post-election and Fed rate decision volatility. This kind of tight price contraction could signal that the market is gearing up for a larger move.

However, if the $484 level doesn’t hold, we could see a more dramatic breakdown, as the next significant support isn’t until $476. Keep an eye on these levels in the coming sessions as we navigate this high-stakes period. Don’t get too caught up in the short term volatility- let emotions cool.

S&P Midcap 400

Midcaps are holding their ground as well, anchored along their respective 50-day EMA and point of control (POC) at around the $568 mark. Despite a steady decline and multiple rejections at overhead resistance, particularly at the declining 10- and 20-day EMAs, buyers managed to push the MDY higher in yesterday's session, though this early rally ultimately faded by the close.

This pattern—strong opens followed by weaker closes—is typical in uncertain, volatile markets. In such environments, it’s common for stocks and indices to surge early in the session, only to be sold off as the day progresses. This often happens because sellers remain cautious about holding positions overnight, preferring to limit exposure while uncertainties like elections and rate decisions loom. It’s a characteristic sign of a market still grappling with instability and hesitance.

Russell 2000

The small caps are trending slightly lower, similar to the midcaps, but we’re beginning to notice a series of higher lows over the past three sessions as they find support around the 50-day EMA and point of control (POC). We’ve emphasized before that the $219 zone is crucial for the future of the Russell 2000. As we look at the visible range volume profile (VRVP), you can see that trading volume dramatically decreases below the $219-$216 range, highlighting this area as a potential pivot point.

If the Russell 2000 breaks below this level, the next likely retracement target could be down to $218 or the rising 200-day EMA, which would be a significant blow to the small-cap market. However, we don’t expect this to happen. The 50-day EMA has supported the IWM for several months now, and the broader macroeconomic climate is improving for small-cap stocks, especially with the potential for lower borrowing costs and interest rate cuts from the Fed. Still, it’s important to keep this breakdown scenario in mind as we navigate through these turbulent times.

Daily Focus
If In Doubt, Stay Out

Today, we find ourselves in a distinctly risk-off environment, and we expect this sentiment to continue for the remainder of the week. There are simply too many factors influencing market direction right now. Beyond the election, the upcoming Fed rate decision on Thursday adds another layer of volatility that can cause erratic movements in stocks, especially those attempting to break out.

We’ve observed a significant number of stocks that have broken out only to retrace completely within a day or two. This isn’t the kind of market we prefer to trade in, nor do we have an edge in such conditions. It’s crucial to understand the market dynamics that generate alpha for your strategy. As long-only momentum swing traders, we thrive in trending or directional volatility, and right now, that’s not the environment we’re in.

We would much rather wait for calmer conditions before shifting to a more aggressive stance, targeting stocks that have demonstrated resilience during this hectic period. That’s when the best buying opportunities arise. Currently, the risks simply don’t justify the potential rewards, and major gap downs could be on the horizon.

Better trading days will come, and solid setups will return. Don’t let the outcomes of today’s election or the immediate movements in the stock market intimidate you. Remember, the market is a living, breathing entity that can react irrationally to news. Patience will pay off in the long run.

WATCHLIST
The Best Looking Setup In the Market

LPSN: LivePerson, Inc.

• LivePerson (LPSN) is set to report earnings after hours on Thursday, right after the Fed's rate cut decision. This timing creates a compelling setup for traders, especially considering how well LPSN has been establishing itself over the past several months.

• Since early July, LPSN has built a solid base following an impressive +200% rally in just three weeks. The stock has successfully broken above its declining 10- and 20-week EMAs, signaling a significant shift in momentum. While weekly charts are often overlooked, they are crucial in understanding the price action and volume characteristics of LPSN, which have shown notable contraction. Currently, the stock is finding support on its 10- and 20-week EMAs, positioning it for a potentially strong upward movement.

• The timing of the earnings report, following the Fed's decision, could benefit LPSN. We anticipate that the market will respond to the Fed’s actions and hopefully settle down after the election results, creating a more stable environment.

• For now, LPSN is the only stock on our radar, and we are considering entering a position this week. However, we will not engage in a breakout before the earnings report, as the uncertainty from both the macro perspective and the inherent risks of holding a stock through earnings make this approach too risky. We'll remain cautious and wait for clearer signals post-earnings.