Kvarn X Pro Weekly Report 46

Quick recap: last week

Last week, the Kvarn X Pro Weekly Report was written in a quite cautious mood. The S&P 500 index had fallen below 7,600 points, a level we have regarded as an important milestone. Investors also appeared to favour defensive stocks over growth stocks, and we saw the VIX index elevated. We also noted that the bitcoin price was showing signs of turning lower. Taken together, these observations pointed to investors turning quite cautious.

Election result shook the equity market

The most significant event of the past week was naturally the US midterm elections. The elections, which ended in a clear Democratic victory, triggered strong volatility in the markets.

On Wednesday, the day immediately after the elections, stock prices jumped, and the S&P 500 index rose more than 1.5 percent. Right afterwards on Thursday, however, we saw an exceptionally sharp down day, in which the S&P 500 index plunged more than four percent and the Nasdaq 100 index more than six percent.

Friday in between was quiet, but on Monday we saw equity indices jump again, with the S&P 500 index rising 2.3 percent and the Nasdaq 100 index 3.4 percent.

After this whole rollercoaster, the major equity indices are roughly at the same level as before the election result became clear.

So how does the equity market look after all this volatility?

The chart below shows that the S&P 500 index is below its 10-, 20- and 50-day moving averages, and all of these averages have turned lower.

The Nasdaq 100 index looks clearly weaker still than the S&P 500. The index has fallen below its 200-day moving average, and Monday's strong rally was not enough to lift it back above this important watershed.

The small-cap Russell 2000 index still looks the strongest of the three. The Russell 2000 is currently above all of its moving averages, and only slightly below the levels of last Wednesday's “election bounce”.

Within the equity market, investors still appear to favour defensive stocks. The RPG/RPV ratio, which compares growth and value stocks, fell on Thursday to lower levels than in the spring 2025 tariff panic.

Anyone looking for positive signals in the market might still find them among consumer stocks. Consumer discretionary continues to strengthen against consumer staples. This could point to improved expectations for consumers' purchasing power.

It should be noted, however, that this ratio had been falling sharply since the start of August, so the rise so far could also be dismissed as mere “mean reversion”.

Positive signs can also be seen if we exclude the most obvious weak link, the technology sector. The price of the SPXT fund, which invests in the S&P 500 excluding technology, is above all of its moving averages, and both its 10- and 20-day moving averages are rising.

Market breadth also still looks strong. Nearly 70 percent of S&P 500 stocks are above their own 50-day moving average.

At least for now, more than 50 percent of Nasdaq 100 stocks are also above their own 50-day moving average.

As long as we see the breadth of both the S&P 500 and the Nasdaq 100 remain strong, it is hard to turn outright “bearish” on the equity market, despite last week's volatility.

We must make it clear, however, that we still see risks in the equity market. The VIX index is still around 20, which points to clearly elevated volatility expectations. The post-election turbulence may not yet be convincingly over.

We note, however, that in the bond market the MOVE index has been clearly falling over the past week. If a more significant correction were coming in the equity market, we would most likely expect the MOVE index to turn higher again as well.

In summary, the nervousness that preceded the elections and intensified after them appears to be continuing. As long as growth stocks look this weak, it is hard to see the equity market having the conditions for significant index-level moves higher.

For the coming week, we suggest watching the 7,600–7,700 point zone on the S&P 500 index. Below this zone, the index looks clearly downbeat, which forces us to prepare for further moves lower. On the other hand, a move above this zone would make the index look unambiguously trending higher.

Is gold ready for a new rally?

While the US midterm elections appear to have triggered strong volatility in the equity market, their effect on the gold price appears to have been mildly positive. The gold price has risen clearly from its late-October lows and has already moved above $4,100.

For gold, the $4,200 level looks like a fairly clear watershed. A move above this level would mean breaking above its 50-day moving average, and at the same time reaching higher levels than at any point in October. We are watching with interest whether we will see signs over the coming week of the gold price moving into an outright uptrend.

As an interesting nuance, we note that gold mining ETFs have risen even more strongly than the gold price itself. For example, the VanEck Gold Miners ETF has already broken above its own 50-day moving average and is already higher than at any point in October. It will be interesting to see whether mining stocks are already giving a hint of where the gold price itself is heading next.

Crypto market falling

Last week, we noted that the price of the largest cryptocurrency, bitcoin, was trending lower. We did, however, note how little the largest crypto theft in history, which had just hit Binance, had moved the price. In this ambiguous situation, we set the $75,000 level as an important watershed for the bitcoin price.

In recent days, we have seen the bitcoin price moving on both sides of this milestone. We have not yet seen a fully convincing breakdown, but right now the momentum appears to be pointing down rather than up.

If we put the bitcoin price against the S&P 500 index, we can see that this ratio is clearly trending lower.

Within the crypto market, we can also see altcoins clearly weakening against bitcoin.

This supports the reading that investors remain cautious.

In summary, investor caution in the markets appears to be continuing. Equity indices have recovered slightly from last Thursday's sudden drop, but at the index level we cannot yet speak of any kind of uptrend.

Volatility expectations in the equity market remain high, and investors favour sectors perceived as lower-risk. In the crypto market, the general direction is down, and investors favour bitcoin over altcoins. Tellingly, of the trio of equities, cryptocurrencies and gold, gold, which long looked like the weakest link, has now become the strongest asset class.

So there are still risks in the market, and further moves lower should come as no surprise. On the other hand, positive developments cannot be completely ruled out either. It is of course possible that Thursday's sudden drop was a “capitulation” at the end of several weak weeks, and that the direction may already be up. The end of the year and the months following midterm elections have often been a period of quite favourable developments in the equity market.

Our primary expectation remains quite cautious, but after Thursday's one-off crash we have to open the door a little wider to the possibility of a move higher. The coming week will likely tell us a lot, and we encourage readers to keep an eye on the 7,600–7,700 point zone on the S&P 500 index, which we identified earlier as the key factor.

Wherever the market goes, we will keep following the situation and keep you up to date, so stay tuned!