How could everything be up yesterday?

by Jay Pestrichelli on November 6th, 2012

Yesterday was one of those days where the market just couldn't make up its mind. From a technical perspective, there were some inconsistencies that will have to right themselves by Wednesday. Stocks were up, bonds were up, the VIX was up, Oil was up, gold was up and even the dollar was up. As much as everyone likes to be a winner, it just can’t be that all those different asset classes can go up at the same time
Typically when bonds are up, stocks are downs. When stocks are down volatility goes up.  In the past few years, when stocks were down, oil was down. And when the dollar goes up, gold and oil go down.
So who was wrong? Typically we classify bonds as the big institutional money.  Options (i.e. the VIX) are the sophisticated money. Oil and Gold are where the commodity hedgers go and Forex (currencies) is the most speculative money of all.  Stocks, unfortunately, are considered to be the common money and as a result are most often wrong when this kind of situation emerges.
When we’ve observed this out of balance scenario in the past, stocks always righted themselves by the end of the day by selling off, but this was NOT the case yesterday. In fact, stocks accelerated in the last hour especially the NASDAQ.
The obvious reason for this is due to the uncertainty of this close election. Essentially everyone was placing their money where their mouth was and the fact that this will be such a close election was underscored when all asset classes clashed by going higher. While it’s highly unlikely that the imbalance will continue through today, the election indecision will still hang over the financial markets today and watch for more oddities to surface.
All this pent up market movement will most likely snap back into place come Wednesday morning and it will be exaggerated. I’ve heard talks of a 20 point SPX move either way is waiting for us or that any results tomorrow will be a “sell on the news” situation. While no one really knows until we get to the close of trading Wednesday how the election will push investors, it’s safe to say that everyone will be paying attention as they’ve all thrown money into the kitty as to how they are betting this day will go.

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