The French election played out with the best possible scenario for the European and U.S. markets.
Emmanuel Macron finished in first place with 23.9% of the vote and Marion Le Pen came in second with 21.4% of the vote. In this scenario, Macron is expected to win the runoff on May 7th by a margin of 65% to 35%. Analysts were worried Le Pen would garner more than 30% in the primary and give her a lead going into the runoff. Le Pen would be bad for France in several areas like exiting the euro currency and Macron would retain much of the status quo. The S&P futures are up +20 points on the result.
We knew there would be volatility after the election with Citigroup saying markets could more 5% to 10% in either direction depending on the outcome. If the future hold overnight the S&P will blow through initial resistance and probably test 2,370. The Nasdaq indexes will explode out to new highs and create a monster short squeeze. The Russell 2000 will likely breakout of resistance at 1,388 and move well over 1,400.
The Nasdaq futures are up +44, Dow futures +146 and Russell futures +15.
Given all the negativity over the last couple weeks there will be plenty of shorts getting squeezed. With the earnings calendar this week the heaviest in several years, there will be plenty of fuel for a continued rally as long as lawmakers don't mess it up.
The House and Senate have to pass a funding bill and raise the debt ceiling by midnight on Friday or there will be a government shutdown. Since the republicans definitely do not want that label this year, this will be a test of Trump's and Ryan's negotiating power and determine how much they are willing to give up to avoid a disaster. Trump wants $1.5 billion to start construction on a border wall and the democrats claim there is no way in hell they will allow it. This means there will be a showdown. Ideally, they will pass a continuing resolution to buy a couple more weeks of time while they negotiate their positions.
The Dow chart remains bearish and a 145 point opening spike would put it at about 20,700 with resistance at 20,705. Depending on how much short covering adds to the rally we could get over that level and quickly turn the chart from bearish to bullish.
The S&P closed at 2,348 after rebounding from 2,330 on Monday. If the futures hold, the index could reach 2,370 and the next resistance level. A break over 2,370 would turn the chart from bearish to bullish unless/until the rally failed.
The Nasdaq Composite is only 6 points from its high and a 45 point futures spike would put it neat 5,950. That would be a solid breakout and short covering could add even more to the spike. This could begin a new leg higher but this is a heavy week for tech earnings and several high profile disappointments could be an anchor later in the week.
The Russell 2000 was already showing bullish signs last week with the rebound from 1,345 to 1,380. Adding the 15-point futures gain would lift it to about 1,400 and be the boost needed to get over the 1,388 resistance level.
There are 194 S&P-500 companies reporting next week along with several hundred non S&P companies. This is the busiest single week we have had in several years. There are 12 Dow components reporting. Thursday is heavy tech with several of the big cap drivers reporting. That means Friday's market could be crazy when you include the funding deadline in the mix.
There is a full economic calendar as well but nothing that should be market moving with the exception of the GDP on Friday. The following week is the employment reports and the Fed meeting.
There is nothing I can recommend as a play for Monday. If the futures hold there will be a monster gap open and anything filled at the open will probably be at the highs for the week on the option premiums. We have a lot of plays in the portfolio that will benefit significantly from this burst of bullishness.
There is the potential for a climax spike given the event risk danger of a government shutdown. If the market rolls over from its highs, you might want to consider raising some cash. You never know what the idiots in Washington are capable of doing including shooting themselves and the market in the foot. They have done it before, more than once.
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