In Search Of…

It seems we’re all in search of something right now. For most of us, it’s clarity in data. Will the markets pull back from here? Is there an all-clear to buy more?

The frustrating reality is that the rules of this game are being re-written mid-game. Somewhere between a pandemic and the largest global stimulus package in history is some truth. Unfortunately, we won’t know what the truth was until after it happened.

For now, we’re all taking calculated guesses. But to be clear, that’s what these are: guesses.

Technical pricing is all over the place. When you start having 10% daily swings in pricing, you’re no longer dealing with a typical market. So keep that in mind: nothing about this is typical.

When looking at the BigFoot data, we’re in a rough spot. Unless the markets rally about 25% this week we can expect the Market Macro to flip to sell.

Meanwhile, the Fed has been jiggering its own data reporting mid-crisis here, and they’ve altered the way data gets delivered to the Credit Macro (we’re fixing it, but still… really guys? now?).

The Credit Macro is still positive… barely. But there is no mid-point on that one. It’s either in or not in. So we watch with great interest as the credit markets have been seriously roiled in the past few weeks. (Don’t believe me, go check out the wild right in mortgage rates or high yield bonds.)

One bright spot is the economic indicator, which is still in the green. But even this is showing signs of shift as it has started to roll over.

The final big-picture concern is the database of algo’s. It is presently at the lowest level I’ve ever seen, with only 18.67% of positions long in the system (and of those, about half have wait signals).

Yes, folks, this is a mess. And trying to call it is a mess. A quick look at the futures tells us we’re likely to see a positive opening (futures gapped down at the open Sunday but then steadily climbed through the entire session). The question on everyone’s mind is, will this hold?

I don’t know. If technical price movement tells us anything, it’s that we’ve seen a major rally in the last week… unlike anything I’ve seen in my 20 years as an investment pro. So we’re literally in uncharted waters here.

If traditional analysis were to hold, there may be some additional up-side from here based on this push… we could get to perhaps a 50% recovery, which would be somewhere around 2750/2800 on the S&P500 (close to the original bear-market threshold). However, we’re close to a resistance area already by some measures, so a re-test of the 2400/2350 levels would not be unexpected.

But again, this thing is not functioning right now. Folks got all excited about stimulus — big stimulus — HUGE stimulus. But that stimulus is going to pick a lot of winners and losers. The bill was loaded with pork… and politics. We have no idea what the actual results of this thing will be.

As the details of the bill become knowns instead of hope, my expectation is we may see a pull-back again in the markets. This is just a hunch, but it’s based on the idea that this bill will likely only help some players.

Also, the virus has become a political football. The shelter-in-place orders will damage parts of the economy. The longer this goes on, the more difficult it is to assess the damage. Which areas of the supply chain are permanently impacted? Who wins, who loses?

For the week… we need to see what happens technically. If we push higher, it could be another 10% up this week. If not, about 5% down… Those are decent up-side/down-side numbers. Unfortunately, trying to game the odds of which one will happen may as well be a coin flip.

So for now, we’ll watch. As this unfolds, if there are material changes worth mentioning, I’ll update the blog mid-week. Until then, good luck gang…

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