Reading the headlines you’d assume the markets were gearing for a collapse. After all, just about ever superstitious thing you can think of is lining up. It’s a month before elections, there are protests (and riots) all over the place, hurricanes – POTUS even got Covid.
A look under the hood at the BigFoot Database is similarly concerning. The total percent long for the database is now under 42%. That’s slightly more than a 50% reduction off peak numbers that crested 84% long.
The NASDAQ and the S&P 500 both have sell signals. The DJIA just tripped a wait signals.
All three major indexes dipped into correction territory in September.
And, of course, there are all the structural problems in education and the economic supply chain resulting from Covid shut-downs.
So things have gotta be bad, right?
Well, yeah… but that doesn’t mean the stock market has to go down.
This week there is a key technical area for the S&P 500 to watch: 3427. .. or if you want to split hairs, 3426.96. This was the closing price for the index on September 4th, just two days after the markets had set new all-time highs then aggressively sold off.
If the SPX manages to close above this key level any time this week, it would likely signal a re-test of the all-time highs for the index.
It may seem counter-intuitive, but keep in mind the stock market is a forward looking mechanism that is trying to handicap the future. In that respect, it is already looking as far ahead as it can – including past the election. So what we’re really looking for is a signal that expectations are going to change.
The technical data, so far, does not indicate those changes. In fact, the price movement seems to be consolidating around the current levels. Futures have indicated a positive open for Monday, and it appears the momentum is shifting back toward the up-side.
Even the BigFoot Database, while negative, is in a fairly extreme condition. Remember, part of what triggers a sell signal in the system is a negative volatility spike. If volatility drops, those signals will stabilize and potentially flip back to the buy side.
So keep an eye on 3427 on the S&P 500. That is the critical resistance area for the week. Support should show up at 3323. And, if trends hold, volatility could actually decline (again, counter-intuitive in this media cycle, but a possibility nonetheless).
In the FWIW, the President having Covid is probably less of an event than the media has let on too. We will discuss more about this in our upcoming forum call this Thursday. Catch you there… (and if you’re not on the list and would like to join the call, ping us at firstname.lastname@example.org and we’ll get you a link).
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