What’s Happening?

This has the potential to be a big week for trading in US stocks. With the election campaign coming to a climax and the race getting really close, markets which had been complacent about a Clinton win have started to be rocked by new events and shifts in the polls. A Fed decision Wednesday, nonfarm payrolls Friday, manufacturing PMI Tuesday and other economic reports also have the potential to spark market moves.

Technicals:

Rallying up off out of a February double bottom, the US30 staged a major advance through the first half of 2016 but since the summer started, signs of distribution have emerged”

The new highs on trend in July and August were not confirmed by new highs in the RSI, a negative divergence indicating upward momentum was weakening.

Between mid-July and mid-September, the Dow completed a bearish head and shoulders top.

In September, the Dow broke its 50-day average and remains below it, with both trending steadily downward.

A trend of lower highs above 18,000 support has been forming a bearish descending triangle pattern.

Since falling under 50 in September, the RSI has remained below the 50 line indicating downward momentum.

Lately stocks have been starting days strong in the mornings and drifting lower though the day to finish near their lows of the day

Recently the US 30 has been trading between 18,090 and 18,250. A break of 18,000 would add to the bearish technical signals and signal the start of a new downtrend that could retest its 200-day average near 17,775 initially.

Fundamentals

It’s not unusual for stocks to have a seasonal correction and so far this year’s pullback has been shallower than average, and it’s possible the timing of the correction could have been influenced by the election.

Earnings season on balance has been better than expected, but the US 30 and other major indices have been unable to capitalize and break out. Similarly, markets have failed to respond to a flurry of mergers with Time Warner trading nearly $20 below A&&T’s $107.50 bid price. This suggests that markets had priced in strong results ahead of time and traders appear more inclined to take profits against earnings and merger news and less interested in adding to long positions.

Markets to date have been pretty complacent about Hillary Clinton winning trading near all-time highs. The way markets reacted to the Brexit surprise and market reaction to previous changes in party control of the presidency suggests that a Trump win or a contested result could create a lot of uncertainty and volatility in trading.

This is also a big week for economic news that could move the market including manufacturing PMI Tuesday, ADP Payrolls and FOMC interest rate decision Wednesday, and nonfarm