Between the extremely unorthodox political campaign, daily headlines that are too bizarre to believe, sporadic earnings guidance and impending FOMC meeting, it is no surprise the market is weak.

On Friday, the S&P closed at a six-week low, the Russell 2000 at a three-month low and market internals slowly turning bearish. The FBI headlines on Friday shocked the campaigns and the market and they became even crazier over the weekend. Several sources are reporting as many as 650,000 emails on the Huma Abedin laptop that came from the State Dept and Clinton's server. Even more bizarre, Abedin claims she has no idea how those emails covering a 5-7 year period ended up on her husband's laptop. Six emails, maybe 60 emails could go astray but 650,000? That is hardly an accident.

That number did not come from the FBI but is being reported by the Wall Street Journal and the Washington Post. If that number is even close to correct, Abedin is in a world of trouble and since she has been Clinton's top aide for nearly 20 years, and the FBI has found Clinton emails on the laptop, there is going to be the mother of all investigations that will take months to sort out.

The problem here is that the market appeared to want Clinton to win the election because they favor the resulting gridlock rather than the complete upheaval that would follow a Trump win. With Clinton there would be little uncertainty over her presidency even though there would be challenges to drug pricing, higher tax rates and a bigger Obamacare program. As long as the House remains in republican hands, only minor changes could be pushed through congress. Therefore gridlock would continue and uncertainty would fade.

A Trump win would rock Washington. In his own words, he is going to "drain the swamp." Of course talk is cheap but he has put forth dozens of changes and programs he would launch in the first 100 days and many of them have the political class running scared. Trump would control the media and anyone not going along with his plans would be crucified in the press. Trump is not a polite politician. He would be a raging bull turned loose in the capital china shop.

The market fears this possibility. The market prefers political calm and therefore a Trump win could produce some significant market uncertainty. Multiple analysts have predicted a Trump win could cause a 10-15% correction. With the polls running almost a dead heat this weekend and Trump's numbers accelerating rapidly, I believe we could have a potential market decline before the election.

Monday is the fiscal year end for mutual funds. That means Tuesday is the first day of the next year and any portfolio manager afraid of the election results would be free to dump positions in volume for the rest of the week and raise cash to put to work once a winner is announced. I hope I am wrong but I am worried about the market this week.

The small caps normally lead the market both up and down. The Russell 2000 broke through critical support at 1,200 last week and is currently unsupported until 1,095. I do not expect it to drop that far and it could find buyers at any time but this chart is an investor's worst nightmare. The potential for a real decline is very high.

The S&P closed at 2,126.46 and the exact same close as October 17th and both are six-week lows. The critical support at 2,120 was tested on the FBI headlines on a reactionary basis. That dip was quickly bought as investors tried to decide what the announcement really meant.

It would seem that the S&P is also setting up for a decent decline BUT the S&P futures were down -4 when I started this commentary and now they are +1 late Sunday night. That is hardly an expected development. The Asian markets are mixed with minor moves on the various indexes. I have not been watching the news so I do not know what would have lifted the futures other than possibly some new political event. It is possible managers are setting up for one day of window dressing to close out October and their fiscal year.

The Dow remains locked in a tight range between 18,100 and 18,250. The Dow has been volatile because of a variety of earnings moves but remained sideways. There are no Dow components reporting earnings this week. Watch those two levels and trade accordingly.

The Nasdaq Composite closed under critical support at 5,200 but only by 10 points. That level is still in play. A further decline could begin triggering sell stops at any time. All the big cap tech stocks have reported and therefore big moves related to earnings are not expected.

This is a big week for economics with the ISM, two payroll reports and the Fed meeting. The fed is not expected to hike rates but they are expected to say we should expect a hike in December. The payroll reports could be soft and that will complicate the Fed projections.

I could be entirely mistaken but I am worried about market direction beginning on Tuesday. I would continue to caution about being overly long. I would suggest you refresh your shopping list of stocks you would like to buy on a significant market dip. After the recent bout of earnings disappointments, your choices may have changed.

Jim Brown

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