Democrats take the Senate and the House, chips recover

Yesterday was a session just as I expected, another erratic one with the US midterm elections as an uncertain factor in the background. Those are now largely behind us, with the Democrats pulling both the Senate and the House towards them, a turnaround that normally limits the power of the Trump administration considerably. What stands out this morning is how negatively the futures are reacting, while at the same time I see enormous volatility. The Nasdaq 100 future swung overnight between high and low by more than 800 points, and that is quite violent. The market had already fallen apart considerably in recent weeks, especially in technology, with the Nasdaq 100 heading towards a 10% correction and the SOX index heading towards 'Bear Market' territory with a correction of around 20%. Personally I first want to see how the market behaves after the opening of Wall Street.

Democrats take the Senate, the House likely follows

The Democrats have won the majority in the US Senate. The AP news agency called the Senate seat in Texas for James Talarico, who beat Republican Ken Paxton. Billionaire Elon Musk put more than $212 million into Paxton's campaign, without success.

The Democrats also won the House of Representatives. The governor's race in Texas also went to the Democrats, where Gina Hinojosa beat sitting governor Greg Abbott, the 1st Democratic governor victory in Texas since 1990, a race analysts had already flagged beforehand as a risk for data center construction, because Hinojosa is known to be critical of the large data centers the AI industry needs.

The combination of a Democratic Senate, a majority in the House and a more critical governor in a key data center state hits a sensitive spot for the market. Investors have long priced a sizeable data center building wave into the prices of AI related names, and every signal of additional regulation weighs on that.

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Chip names bounce, Oracle impresses

The Dow Jones closed Tuesday 0.38% lower at 51,787 points. The S&P 500 gained 0.36% to 7,569 points, the Nasdaq Composite rose 0.83% to 25,372 points and the Nasdaq 100 climbed 0.68% to 28,180 points. The chip index SOX recovered the most with a gain of 2.63% to 10,600 points, and the Russell 2000 closed 0.23% higher at 2,812 points.

Marvell and Lumentum stabilised after Monday's sharp drop on the announced takeover. Lumentum still lost 0.62% to $680.16 and Marvell gained 0.33% to $171.97. Apple remained under pressure and fell 1.90% to $331.90, in the wake of the critical analyst reactions to the margin pressure in the quarterly results. Palantir lost 1.65% to $175.40, also following the after hours reaction to Monday's results.

Oracle on the other hand bounced back strongly with a gain of 5.85% to $126.19, after Monday's sharp drop. After hours AMD rose 7% to $519 and Super Micro Computer gained 7.5% to $33.7, which came after results that showed strong demand for AI servers, a breather after the chip sell off of recent weeks. Intel seems to be stabilising around $60, after the sharp drop of recent sessions.

The US 10 year yield stands at 4.93% at the time of writing, and the 30 year yield at 5.32%. Gold stands at $4,035, silver at $51.7 and bitcoin at $78,050. Brent oil stands at $104 a barrel this morning, practically flat.

The broad gains in chip related names such as AMD and Super Micro Computer stand in stark contrast to the sharp correction the sector went through in recent weeks. The recovery at Oracle after Monday's sharp drop points to renewed confidence in the cloud deals around artificial intelligence, even though the margin pressure at Apple and the growth slowdown at Palantir remain a sober counterweight.

AEX and DAX both lower, Philips shines

The AEX closed Tuesday 0.95% lower at 1,121.8 points. The DAX lost 0.45% to 25,865 points.

Philips stood out on the AEX with a gain of 4.81% to €25.70. Adyen had to give up 2.75% to €827.80 and ArcelorMittal lost 2.41% to €54.16. On the DAX Bayer gained 3.64% to €51.84, while MTU Aero gave up 3.12% to €335 and Volkswagen lost 2.25% to €68.66.

Agenda and outlook for today

The US futures point lower on Wednesday morning but remain volatile, so we simply have to wait for the opening. In Europe the future on the DAX is lower, and the AEX future is also slightly lower. The Nasdaq 100 future stood sharply lower during the night before some ground was regained this morning.

This afternoon at 14:15 our time ADP publishes the number of private sector jobs for October. At 14:30 the US trade balance for September follows, and at 16:00 the ISM services index for October.

Quarterly results today come from, among others, McDonald's, Uber and CVS Health before the open, and Qualcomm and AppLovin after the close.

My view on today, keeping calm after election night

Yesterday was another erratic session for me, with moves on both sides while waiting for the US midterm elections. Trump has clearly lost them, so the Democrats now get control of both the House and the Senate, a complete change that normally limits the power of the Trump administration considerably. As far as the elections go, that is now largely behind us.

I notice that the futures react rather volatilely this morning, while I also see enormous volatility in the Nasdaq 100 future between high and low during the night, with a difference of more than 800 points. The big question now is what to do with that. The market has already been shaken up quite a bit, especially in technology. The Dow Jones held up reasonably well, the S&P 500 sits somewhere in between, but the Nasdaq 100 is heading towards a 10% 'correction zone'. The SOX index, the chip related index, already shows a drop of around 20% and is thus entering 'Bear market territory'.

Now it is a matter of waiting to see what the markets plan after the opening of Wall Street. A considerable correction is already behind us, especially in technology stocks, and I will watch whether some recovery can come out of that. After this period, towards Thanksgiving, the Anthropic IPO and the end of the year, a positive period normally follows, although investors first need to reposition themselves for the new situation. On the horizon I see that Anthropic IPO as the last big item entering the financial markets, the cherry on top of the Christmas tree so to speak.

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The psychology behind this market

An election night whose result is not yet fully settled, and a futures market that reacts strongly to it, is a textbook case of overreaction. Overreaction arises as soon as a first, incomplete picture is already treated as a final verdict, before the last facts are in.

From the coaching role at Guy Systeem Trading this pattern is regularly recognised, a price that moves harder than the underlying facts justify at that moment. Anyone who reacts fully now to a still incomplete picture of the situation runs the risk of getting in or out at exactly the wrong moment. Calm remains the wisest attitude as long as not every detail is confirmed, even if the first price reaction whispers something different.

"An overreaction already draws a conclusion, while the result has not even been digested."

Technical view AEX

The AEX closed Tuesday at 1,121.8 points, after the index last week still ran up to 1,148 points. Below the price the SMA-50 at 1,118 still just holds as support, with 1,115 and 1,105 as the next safety net. Above the price 1,123 awaits as 1st resistance, with the peak at 1,148 as the next hurdle. The price fell back in recent days with a sharp drop to just above the lower Bollinger Band, a sign of a considerably stretched move downwards. The RSI fell back to neutral territory and momentum also turned negative.

Click the chart to view it in full size.

In short. The price is now falling back after the test of resistance at 1,148

The price is now just above the lower Bollinger Band

The SMA-50 just holds as support, as does the longer rising trend.

The MACD fell just below the signal line, with a slightly negative histogram.

The AEX has been moving in a clearly rising price channel since the spring, with higher tops and higher bottoms. The price is now sinking again after a test of resistance at 1,148 points, and for the time being fails to get above it. If the SMA-50 at 1,118 holds, a rebound is likely. Do watch 1,123 as an important resistance then.

A close below 1,115 and 1,105 would weaken the short term picture further and shift attention to the lower edge of the rising channel. As long as the longer trend remains intact, the current pullback fits a correction within the upward move rather than a trend break.

Technical view Dow Jones

The Dow Jones closed Tuesday at 51,787 points, within the broad trading range in which the index has been moving since August. Below the price 51,500 offers support, with 50,300 as the next safety net. Above the price 52,750 is the 1st resistance, with 53,250 as the next hurdle. The price trades below the EMA-20 at 52,072 and the SMA-50 at 52,153, with the SMA-200 at 50,629 still well below. The RSI at 46 is in neutral territory and momentum also looks slightly negative.

Click the chart to view it in full size.

In short. The price trades below the EMA-20 and the SMA-50

The SMA-50 remains well above the SMA-200

The Bollinger Bands lie relatively close together, a sign of a quiet market

The MACD fell below the signal line, with a slightly negative histogram.

The Dow Jones has been moving sideways for a few months within the longer rising trend, without a clearly recognisable pattern. The price does not yet get above the SMA-50 at 52,153, and a new test of support at 51,500 is likely as long as that remains so.

If support at 51,500 holds, the broad range remains intact. A close below 50,300 would weaken the picture and shift attention to the SMA-200.

Technical view Nasdaq 100

The Nasdaq 100 closed Tuesday at 28,180 points, still just above the SMA-200 at 27,953, but well below the EMA-20 at 29,360 and the SMA-50 at 29,753. Above the price 28,900 is the 1st resistance, with 29,700 as the next hurdle. Below the price 26,180 offers the next notable support, a lot further below the price than usual. The RSI fell back to 35, close to oversold territory.

Click the chart to view it in full size.

In short. The price fell far below the EMA-20 and the SMA-50

The price trades around the lower Bollinger Band

The MACD and momentum are both firmly negative

The SMA-50 remains above the SMA-200, although the gap is shrinking quickly.

The Nasdaq 100 broke down out of the rising price channel of recent months in the past sessions. The price is sinking again after a test of resistance at 28,900, and for the time being fails to get above it. The SMA-200 still just holds as support.

If the price breaks below the SMA-200 at 27,950, the road is open towards support at 26,180, a level considerably lower than usual. If the SMA-200 holds, a rebound is conceivable.