Well, it's over. Rather than dragged out results with an unknown winner, the 2024 presidential election had a declared winner before the market opened the day after voting ended. The postelection rally was astounding. But before victory is completely declared for the market, Katie Stockton, founder of Fairlead Strategies and portfolio manager of the Fairlead Tactical Sector ETF, wants to see more. She joined the "Investing With IBD" podcast to discuss her thoughts.
With so many stocks gapping up on Wednesday, Stockton wants to see the moves over the next few days. "We want to see breakouts get confirmed," she noted, "at least a few days above resistance levels."
Since many stocks are gapping up on the postelection rally, can they hold the lows of their gap-up days? Can they build on the gains?
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Stockton also is eyeing some of the gap-ups this week with some suspicion. Stocks that run awhile and then gap up could be exhaustive gaps and signs of climactic action. It's much better to see the gap ups coming from consolidations. The context of what the stock has done in its recent past distinguishes exhaustive gap ups from breakaway gaps.
Is Market Sentiment Too High For Postelection Rally?
Another element that might make an investor cautious here is that sentiment has been on the high side of bullishness. "This really was a market of anticipation," Stockton said ahead of the election. But still, she noted, measures of bullishness were still very elevated in October. From a contrarian view, that's not a good sign.
She also pointed to a raised level of volatility that could add a challenge, because we may be entering a higher-volatility cycle. "The old floor for the VIX was around 11 or 12," she noted. After the volatility spike in August, "we are looking at new higher floor of around 14 or 16." She explained that when the VIX gets toward its floor, that can show complacency.
While she may be tempering her enthusiasm initially on this postelection rally, she won't ignore a market that proves itself. What is she looking for? "Breakouts can offer the best indications of follow-through and remove resistance from the chart … If they are confirmed, the move is more decisive."
Learn which indicators to watch to be on the right side of the postelection rally.
Follow Nielsen on X, formerly known as Twitter, at @IBD_JNielsen.
