The stock market is likely to make a big move in reaction to tomorrow’s election results.

The situation can play out in any number of ways. No matter what happens in the short term, though, the stock market is still likely to retest the October lows. The only question is whether that happens sooner or later.

I’m going to bet on later – because this market is still following the same roadmap as the February correction phase. But let’s keep an open mind in case this correction shows us something new.

Remember, market corrections typically have three distinct moves. There’s the first move lower – which freaks everyone out and shifts sentiment from bullish to bearish. Then there’s the sharp bounce off of oversold conditions, which inflicts pain on the short sellers and convinces everyone else that the correction is over.

That’s followed by the third move, where the stock market retests the lows of the first move, and maybe makes slightly lower lows.

We saw the beginning of the bounce phase of this correction last week. Some folks might argue that the bounce ended last Friday – when stocks gapped higher and then sold off and ended sharply lower on the day – and now we’re headed back towards the October lows.

That’s possible. But, I’m not so sure.

Given the severity of the initial decline, I just don’t think we’ve seen enough of a bounce yet to set up the final stage of the correction. It looks to me like Friday’s action was just a pause in the bounce phase.

Let me explain…

Here’s an updated chart of the S&P 500…

Last Thursday, the S&P 500 closed well above its 9-day exponential moving average (EMA) line (the red line on the chart). That shifted the short-term trend from bearish to bullish. As you can see, ever since this correction phase started in early October, the 9-day EMA has been solid resistance on any bounce attempt. So, closing above the line on Thursday was a bullish sign.

But, as I told my Delta Report subscribers on Friday morning (subscribers can catch up here), the intraday indicators were quite overbought heading into Friday morning’s gap higher. So, the market was probably not going to hold onto Friday’s opening gains. 

It didn’t. And Friday’s decline has a lot of folks wondering if we’re now headed for the retest of the lows.

Like I said earlier… I don’t think so.

Despite Friday’s decline, the S&P still closed above its 9-day EMA. The downside action was enough to bring the intraday indicators (not shown on the chart) back into neutral territory. So, they now have room to move higher again.

And the various daily technical indicators shown above are still closer to oversold than to overbought. So, they have plenty of room to work higher.

My upside target for the bounce phase of this correction is 2810-2850 on the S&P 500. I still think we have a pretty good chance of hitting that target before the bounce is over. And I’m not looking for a retest of the lows until we get closer to that target area.

So, I think Friday’s action was the “pause that refreshes.” I’m looking for more upside action this week.

Best regards and good trading,

Jeff Clark

P.S. Starting this week, we’re going to shake up the publishing schedule for Market Minute.

From now on, we’ll publish new Market Minute essays on Mondays, Wednesdays, and Fridays. I’ll continue to give you my thoughts on the markets, and an occasional trade idea. But we’re cutting back publication from five days a week to three days, in order to free up time to focus on an exciting new product I’m hoping to launch in January.

We’re still working out the details. But the premise is to offer an online, real-time course where I’ll spend 15-20 minutes, three days each week, in a classroom setting. I’ll show students the indicators and conditions I’m looking at before the market opens, the stocks I’m personally looking to trade, and the conditions I’m looking for in order to trigger a trade.

I don’t think there’s anything like this offered anywhere at the moment. And, I’m quite excited about the possibility of this sort of online classroom.

I’ll have more details on it for you as we develop the program.

Reader Mailbag

In today’s mailbag, one Delta Report subscriber talks about meeting Jeff and gives their own trading story…

Jeff, first let me say it was a pleasure meeting and chatting with you at the recent event in Bermuda [at the Legacy Investment Summit]. I wish your break out session could have been a full day instead of just an hour.

Following your comments in your Delta Direct Update on October 29 [Delta Report subscribers can read here], I executed two trades which I have now closed for profits of 11.7% and 13.0%, in less than a week. Thanks for both your analysis and training. Now, if our [Delta Report trade] positions will just get off the floor…

– Ken

And a few other readers respond to Friday’s Market Minute with their No. 1 commodity to invest in today…

Jeff, I read your Market Minute every day and keep learning. My commodities are First Vanadium (CCCCF), Prophecy Development (PRPCF), EnviroLeach Technologies (EVLLF), and Mineworx Technologies (MWXRF).

– Rick

The silver trade has been far out of balance for a long time. The gold to silver ratio, which had been 50, has re-balanced at 80 ounces of silver to buy one ounce of gold. I believe that is where the better bet lies.

– John

I’m going with long silver ETFs.

– Patrick

What commodities are you watching? Or are you focused on a different sector entirely?

As always, send your comments, trading questions, suggestions, and stories to [email protected].