It’s Almost Reckoning Time

Stocks have enjoyed a break from the scrutiny of fundamental analysis since the breakout of Covid. But it’s been more than a quarter since the proverbial mess hit the fan. The question is, will markets continue to give companies that don’t offer guidance a pass?

With earnings season upon us, the expectation is that companies will begin to provide more insight how things are going in our new normal. It remains to be seen if markets can sustain some of the lofty valuations we’ve seen.

There have been some odd winners and losers in this market. Companies that should be okay haven’t been, and vice versa. In fact, we’ve seen some company valuations soar so much it’s hard to rationalize the price no matter what… and still they climb higher.

So here we are, in one of the most unusual times in history, looking for market guidance. And what do we get?

Well, the technicals are squarely in the sideways-and-let’s-wait-and-see camp right now.

Yep. Not predicting much yet.

Some analysts will say we’ve had a bullish reversal and the trillions of stimulus must push things higher. Others will say the economic damage is being hidden by massive stimulus and our day of reckoning is still ahead.

They may both be right. Markets could actually push higher from here as some companies surprise on earnings. But that doesn’t mean the structural damage to the economy isn’t real.

The experiment of modern monetary theory is playing out in real time at this point. We don’t really know if it will work or not… at least not long term.

Oh, sure, we know it’s working right this second. But we don’t know what happens when tax payments get skipped; when banks have to deal with rent forbearance; when unemployment bonuses run out… who actually pays for all of this?

And if the answer is ‘no one does,’ that’s where we probably jump the economic shark. Because the US dollar is built on the faith and credit of the US government… and one has to ask: how much faith can we have in a currency that has nothing backing it?

But for today… the futures are positive, and the markets have again held support near the 200-day moving averages. For the SPX, the 50-day moving average is back above the 100 (and may cross above the 200 in the next week or two). Heck, even the BigFoot Market Macro has flipped positive again.

So, despite all the concerns, the market is showings signs of recovery.

This is not to say things are healthy. After all, the ‘markets’ are heavily swayed by the mega-mega-market-caps of a handful of stocks. And tech continues to enjoy stratospheric valuations in many cases… But for this week at least, it seems all is well.

So we’ll watch closely as earnings season unfolds. The technicals have rebounded from March lows, and moved into a mostly sideways-to-slightly-positive pattern since early April. Now we get to watch earnings season.

For the week, look for a positive bias, but it’s still unlikely we’ll see escape velocity. Next week the earnings should really start to roll in. As they do, we should get a better picture of market health.

Look for SPX 3062/3000 support, and about 3210/3225 for resistance this week.

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