Sentiment Changes

It seems the mood is starting to change for the markets. The headlines are shifting and the tone is becoming… less bullish.

This is not unexpected. Much of the most aggressive covid relief is either over or baked into the economic expectations now. Unemployment extensions ended last week. Another debt ceiling debate is ramping up. The infrastructure package is being debated. And the Fed, while still hedging its language, is indicating that inflation may cause a shift in monetary policy.

A simple trip to the gas pump or the grocery store will familiarize you with inflation. (Or try to buy a house!) Largely this has been dismissed by policy makers as both transitory and not part of the core CPI figure. But the masses aren’t fooled. Whether it’s food and energy or not, inflation is making the world more expensive in lots of categories. It’s hard not to notice.

The cries from Main Street seem to be finding their way to Wall Street. The question is, are they loud enough… yet? Last week’s market move lower may be an indicator. But, from a technical perspective, it’s not officially shown a change in trend.

Looking at the charts on a very short basis (hours or days), the pull-back last week accelerated down on Friday making it a 5-day losing streak for the SPX.

The thing is, even though it was a 5-day decline, the decline appears relatively orderly and found pricing support at the first wave overlap. Take a look at the chart below:

Note prices stayed within 1.5 standard deviations of the last 21-days of trading, and within the small decline range experienced in August.

So far, this thing doesn’t appear to be unraveling at all.

The issue is sentiment. If it begins to shift, the markets can decline from here. However, the question is, where does the money go? There are two competing ideas at play. One is sentiment headwinds, the other is a lack of places for capital to move to.

A quick look at the futures is indicating a positive open to the markets. However, it’s not a big move. So this week is going to be tough to call. After 5 days of declines, is is statistically likely Monday finishes in the black. But the charts are less convincing than the statistics. The set-up appears to be for a move back toward last week’s mid-way point around 4500. Otherwise, we could test 4395 support. If that happens, we’ll want to take stock of the headlines. A 3 or 4% slide could be enough to spook a few investors.

Overall, the week looks like it will be pretty neutral. Expect some price-recovery from last week’s declines early in the week. A close above 4500 on Monday or Tuesday will likely indicate a move back toward last week’s highs. Failure to close above this level will signal a continuation of last week’s down-trend.


Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by BigFoot), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from BigFoot. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. BigFoot is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the BigFoot’s current written disclosure statement discussing our advisory services and fees is available for review upon request.