Reply Hazy, But Not Really

Let’s just throw something out there: a recession is on the horizon.

That’s not particularly ground-breaking. And it’s not particularly useful. But it is particularly newsworthy.

The fact of the matter is, all expansions eventually end in recession. So, unless the expansion continues, a recession is on the horizon.

The question is not if there will be a recession, it’s when. And, judging from the growing data, the probability of a recession is on the rise.

This becomes more evident when you look at the BF Economic Macro trend. While still relatively sanguine, the curve has been on a slow decline. And therein lies the problem: there is no specific magic data point that says the party’s over. Instead, there’s a slow build of evidence that things are deteriorating, but the evidence is not conclusive yet.

By now you’ve probably read and hear much of the data about late-expansion markets. It’s not uncommon for a spike higher before equity markets ultimately go into bear market territory.

Of course, past performance is no guarantee of future results, so this is not to say the same thing will occur again. But the conditions that drove this market here are the same conditions that persist to this day: a highly accomodative Fed, historically low interest rates, unattractive conditions for most foreign markets, and a need for yields. In short, it’s everything that forces investors into equity markets: There is no alternative (TINA).

The recent flight to the safety of the 10-year treasury is perhaps the wonder of this market. And it may also be the biggest ‘tell’ for the economy. Investors apparently do not see inflation as a risk in this economy. And the data seems to support this.

In spite of record low mortgage rates, the housing market seems to have plateaued. Unemployment remains ultra-low, but wage inflation remains relatively benign. And we’re starting to see some fade in manufacturing data. The consumer, for all appearances, is relatively stagnant. We’re simply re-inventing the economy to happen via computer screen instead of retail store. But in the process, the consumer can price-compare. (It’s as if the natural forces of capitalism are at work online)

So is the market going to correct or not?

Who knows? The truth is, it’s all educated guess. So rather than try to call the next drop, let’s take a look at key indicators that may give us more insight.

Perhaps the simple and obvious first-level indicator is the 200-day moving average. For the SPX, this index is hovering close to the 2800 market (which also happens to be a big fat round number). This seems to be an area of great concern for most market technicians, as it is both a key support metric, as well as an area that markets the bottom of a trend channel. If the SPX were to breach this level, it could be viewed as a more traditional downside breakout.

The problem with breakouts is they can become self-fulfilling prophecies. Enough people want to see a correction, the markets will manufacture one. So far, this recent pull-back has been another buy-the-dip opportunity.

The key question is, has anything changed? For the most part, the answer appears to be no. Things are still positive, but momentum is slowing. And, of course, there’s an election about a year out on the horizon. That always provides lots of fodder for analysts to chew on.

For the time being, despite the chaos that is the news cycle — and all the uncertainty it may breed — there appears to be little material change to the base case for this market. So, given the fundamental story is still more or less intact, the story is that the markets are still in a secular long-term trend that hasn’t failed yet.

What we’ll watch:

  • Fed behavior — a change in policy would be material to this market
  • The 200-day moving average — if the SPX falls below this market for consecutive weekly closes, this could be a more significant signal
  • September… in general… because this tends to be a lousy month in the markets
  • The BigFoot Macro Indicators — which remain positive at this time
  • The BigFoot Database — which has declined from about 73% long down to 63% long over the last couple of weeks
  • The BigFoot Algo’s on the major indexes — with both the SPX and DJIA both shifting from buy to hold — the NASDAQ remains with a buy signal for now.


Until one of these signals has a material shift, the 2019 SPX target of 3084 remains intact.

Note: for subscribers, the semi-monthly forum call has been moved from this Thursday to the following week on August 29th.

IMPORTANT DISCLOSURE INFORMATION

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.

Were Bears Just Invited to Dinner?

Let’s cut through the fluff and get right to the meat and potatoes of the market – did last week’s sell-off after the Trump Tweet announcing more China tariffs represent the end of the road for the bull market?

Too early to call. But judging from the futures markets, the balance has been upset. It looks like more than a 1.5% pull-back is on the horizon for the open today.

At this point, the markets — and the SPX specifically — would be best to stay above the June pull-back lows near 2725. That leaves some additional room to decline, as futures imply an open around 2875 or so today.

The challenge is in the economic data. With earnings still rolling along, but guidance still cautious, and the Fed lowering rates on eroding data — plus the rest of the world’s central banks already at lows — the ‘race to the bottom’ for rates could be accelerating. If that happens, it will get harder to stave off deflation.

Markets know this. After all, if 10-year money only yields 2%, how much up-side is expected in the long term? The problem is, the markets also know there’s been nowhere else to find yield, so the blue chips have been the ‘risk’ asset folks seem to have flocked to to extract yield. At some point, this riskier play may come back to haunt.

While it’s not yet time to worry, it’s time to be ‘on alert.’ The concern is that many investors have been watching for a signal that the bull is dead. The same investors that were forced into the market seeking yield may be the ones that get nervous and exit just as quickly. If so, we could see risk re-price quickly.

When do the bond substitute-ers run for the door? Who knows? But if risk is truly mispriced, when they do run for the door, the markets should notice.

The new issue that comes with the question is, how long before the bear trumpets become a self-fulfilling prophecy? At some point, every prior bull market has come to an end. Most believe this will be the case again. But how to recognize it?

The concern comes in how quickly sentiment seems to be shifting. Markets have been climbing a wall of worry for months – maybe even years now. Those little naysayer voices are getting louder though. At some point, what starts as a pull-back will become an actual bear event. Call me crazy, but I think the place to watch right now is those blue chips – the same mega-caps that have carried the index to all-time highs while masking the underlying weakness in small and mid-caps may be the very tell-tail that markets are turning.

Before you let your emotions get the best of you though, consider this: the trend is not broken, and every other pull-back this year has been similarly violent.

The issue is, there really isn’t any ‘new’ information that justifies panic. Trade is still an issue, rates are still super low, and TINA is still forcing yield-seekers into higher risk assets. The Fed has also maintained its commitment to as much transparency as it can muster, all but showing us the hand they’re holding as they make policy. So there’s not an issue of transparency. There’s simply a question of when will investor sentiment shift enough to move markets into bear territory?

If you have the answer, by all means, share. Otherwise, we’ll just have to stick with the data and the key numbers. This week, the SPX will likely open around 2875 or so. The week could get ugly though. If the market doesn’t find a bid, the 200-day moving average may be in sight in the next couple of weeks. That’s down around 2790.

The “Oh Crap” level is below 2744 or so. This would indicate a close below the June lows. It would also be a ‘lower low’ in the pricing pattern. While it’s unlikely the markets will fall that low this week, it’s a number to keep in the back of your mind. A breach of this level — or the intra-day lows of 2728.81 — would be a bearish signal. At that point, the SPX is likely to go into office correction territory. We’ll take a deeper dive in this blog should those events occur.

For now, look for a rougher week in the markets — or certainly a rough Monday. The BF database is still over 77% long, but we can expect that will shift over the week should volatility continue over the next few days.

This is a normal part of markets. Not every day goes up. And we’ve been spoiled with low volatility for a few years now. It’s often important to remind ourselves of this. Keep perspective – investing is long-term, and this is all part of a market. This is also where opportunities are born. So we’ll be keeping our eyes open.

IMPORTANT DISCLOSURE INFORMATION

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.

Does Downside Risk Outweigh Upside Potential?

After the S&P 500 managed a weekly close above 3000 the wind seems to be coming out of the sails. Last week finished down, with the lows of the week coming Friday at the close. With more and more companies issuing cautious forward guidance, it seems there may be more downside risk than up-side opportunity for near-term investors.

Last week’s pricing move, while not unexpected, makes sense technically. Markets hit an all-time high, so traders, in the face of cautious corporate outlooks, start taking money off the table and locking in some mid-year profits.

3000 was noted as a significant line in the sand. Going into earnings season, investors have questioned whether or not forward guidance would be optimistic.

The issues seem fairly straight-forward at this point – low fixed income rates force people into the stock market, but declining economic conditions and cautious guidance make valuations look more questionable. Fed action continues to wag the dog at this point, and trade policy just adds to the uncertainty. The cocktail really hasn’t changed much for the past several months.

This issue is, at some point, the idea of a market correction can become a self-fulfilling prophecy. The question is, at what point will bears outnumber bulls? Or perhaps a better question: at what point will sellers outnumber buyers? Because that can move prices.

Unless we get some kind of specific black-swan event, it is unlikely there will be a specific point that markets pivot on. Instead, there will be a point at which a negative movement captures momentum and just keeps running beyond what people expect.

Looking at the technical pricing levels, this week may be another negative. After testing 3000, a pull-back would not be un-typical. The question is where might support be found? For the week, 2950 looks pretty strong. But this trend could easily pull-back to 2900 without being considered anything more than a run-of-the-mill pull-back.

That kind of move would put the S&P 500 at its 50-day moving average. A move lower than that would be a more significant shift and could be a sign of further deterioration to come. How aggressive the pull-back occurs could also be important. A few days of sell-off is pretty typical. But a more extended down-draft — especially if based on a specific event — would be concerning.

Perhaps the most important player in all of this will be the Fed. Markets have become near-dependent on the FOMC providing low rates to force a bid under this market. If, for some reason, other factors outweigh these low rates, the stock markets look less attractive to investors. At that point, we will have more to discuss in this blog. Until such time, the story stays the same: TINA until we hear otherwise.

S&P 500 projected range for the week of July 22, 2019

IMPORTANT DISCLOSURE INFORMATION

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 ndirectly
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.

Here Comes Earnings Season

The stage is set for an exciting earnings season. Guidance is one thing, but this is where the rubber to meet the road. Can earnings actually grow from here? Or have we seen peak earnings growth for this economic cycle?

It may not matter… yet. The Fed has all but assured markets a rate cut is coming. So there’s little incentive to run for the fixed income markets. There really aren’t a lot of options for investors to find yield — or any returns for that matter — outside of select real estate markets or equities markets. So a multiple-expansion rally is not out of the question at this point.

The funny thing is, while the fundamental story driving this market higher has not changed, the technical picture has become a mixed bag for the S&P 500. The rather orderly expansion continues to behave calmly as the day-over-day pricing break new highs. In fact, five of the last six trading weeks have finished positive.

But there’s more to the story than just printing higher highs. The SPX is above it’s 50, 100, and 200-day moving averages. And it’s now more than 1.5 standard deviations above its 21-day trading average. By those figures, this market is over-bought.

So which is it? Orderly or over-bought? Perhaps both. The thing is, despite being over-bought, there does not seem to be significant pressure for a price correction. Now that 3000 has been breached, the index will need to test this level to see if it will maintain support. Otherwise, a pull-back toward the 2940/50 level would be fairly typical based on the pricing pattern unfolding.

The upside, while possibly breaking out, appears to be around the 3035 level for the week. If this level is breached, a run for 3050 is certainly possible. But given the over-bought nature of the market, it would take some pretty good earnings news to push things that quickly while we’re already at all-time highs.

Should a downdraft materialize, look for the 3000 level to be the first test. A breach of this level is not exactly a problem. It could just mean a test of the 50-day moving average, or somewhere down near 2900 is even possible. This does not negate the current up-trend. It would be a fairly orderly and typical round of profit taking to see this kind of price move. Should the 100-day moving average be pierced then it may be worth taking a closer look at pricing.

For the week, look for the bias to be positive, with some volatility increasing as earnings season gets under way. As long as expectations are met and guidance is reasonable, the 3100 level is still within sight in the next few weeks. If sentiment turns, we will re-evaluate at that time.

Meanwhile, the BigFoot database continues to be around 78% long. This should remain stable as long as volatility remains low.

IMPORTANT DISCLOSURE INFORMATION

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.

Just Right… for Indexes

Don’t look now but markets are near all-time highs (at least for the major indexes).

Last week’s close was the highest (weekly) in history for the S&P500. Discount the fact it was a holiday-shortened week, but this is still a strong signal.

Perhaps most noteworthy was the jobs report. With a big up-side surprise, this makes for an interesting conundrum: is the economic strength such that the Fed will change course, or are rate cuts still in the near future? This week should provide meaningful insight into this question.

In the mean time, it looks like things are in a sweet spot right now: bad news signals Fed intervention, and good news signals… good news. It’s the rare cocktail of almost everything aligning (in the short term) for a push higher.

Futures are indicating a lower open for the SPX, but this may simply be because traders are returning from a holiday-extended weekend and need to square up their portfolios. Once that dust settles, things appear ripe for a short-term push higher.

It appears the SPX has 3000 in its cross-hairs. If the current technical trend comes to pass, once breached, there may be a quick move towards 3100 before the index pulls back to re-test this level.

Keep an eye on the overall picture though. While the indexes look great, not every area of the market is enjoying prosperity. The interesting thing about this push higher is where the money is flowing. While the indexes move higher, a lot of small and mid-cap stocks appear to be left behind in this rally. (Sure, they’re moving higher – but they’re lower than their March highs, unlike the larger-cap indexes which are breaking out to all-time highs).

What this means is unclear at this time. Do we have another significant leg higher for all equities (especially when looking at the yields in the fixed income markets today)? Or are we looking at the last flash of brilliance as investors pile into large-caps before the bears have their day? Time will tell. But for now, the technical picture looks short-term bullish.

For a deeper dive into the technical picture, join us on this week’s forum call. Until then, keep an eye on the 3000 level for the SPX. If this gets breached Monday, things could go as high as… 3082ish this week (yes, you read that right). For now, this number seems ambitious. But, as goofy as it may seem, 3025 looks probable at this point.

IMPORTANT DISCLOSURE INFORMATION

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.

All Time Highs

Futures are indicating the markets will push to all-time highs today. This is based on the news that there appears to be some kind of “Tariff Truce” with China.

This being the 4th of July week, it’s a little like Christmas – the trading week is short because the 4th falls on a Thursday. This means Friday is likely to be a lower-volume trading day as most will extend their vacation into a 4-day event.

Expect the shortened trading week to have lower volume and exaggerated movements. Looks like a strong pop higher for Monday. The question is whether or not there will be much follow-through. Markets could drift even higher this week. It’s next week we should see the reality check.

For the time being, enjoy the ride. Setting all-time highs is useful on the technical front. It demonstrates the market has more room to grow before a correction. The question is, can we hold this level, or is the the last bright blink before the star burns out?

We’ll need a bit more info before we can make that call. But based on the still solid underlying economic data, it looks like things can keep pushing higher yet.

For now, keep an eye on the 3000 number for the SPX. That’s the next big fat round number market participants (and yes, probably most of the algo’s too) are keeping an eye on.

IMPORTANT DISCLOSURE INFORMATION

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.

Escape Velocity

Equity markets enjoyed a strong 1-week recovery but seem to have more-or-less stalled out after last week. The question is, can momentum break out above these levels, or will a more ominous ‘triple top’ signal a re-test of the 2600 level (or lower) for the S&P500?

The BigFoot Economic Macro Indicator continues to slowly erode. There is still plenty of margin before any type of sell signal would be issued. However, it’s notable the trend has been weakening. Pair this with the uncertainty of trade and tariff, and it’s easier to understand how 2900 or so remains resistance for the SPX recently.

Last week’s intra-day high was 2910.61. That was Tuesday. It may be a point markets do not see this week.

Conditions remain fairly uncertain. It does not appear to be a recipe for collapse, but neither does it appear to be a recipe for things to move higher from here.

For the week, look for SPX support around 2840, with resistance at 2895.

IMPORTANT DISCLOSURE INFORMATION

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.

Reprieve… for now

It seems the markets are pleased with the aversion of a trade war with Mexico. Last week the SPX saw a near-4-percent recovery following the red on Monday. From Tuesday on, it was all green. And, judging from the futures markets, that trend is set to continue into the start of the week.

Does this mean we’re out of the woods and ready to print new all-time highs in the major indexes? Definitely not.

The key number for the SPX this week is 2892. A close above this level would be a sign markets may re-test the highs of the year. A failure here could be equally concerning though, as some technicians will quickly point out it could represent a triple top for the index. This, typically, is viewed as a negative signal for the markets.

The end of the week is the bigger tell. An intra-week close above 2892 is by no means an assurance this market is out of the Woods. In fact, a move above this level, followed by a pull-back and close below the 50-day moving average for the week could be viewed as a re-test and failure after the last pull-back.

Here’s the story by the pictures:

The SPX range is highly unpredictable this week. Will the recovery continue or stall out at near 2892 levels?
Key numbers for the week (with key resistance at 2892)
S&P500 sector proxies
Market Capitalization Proxies
Updated 2019 Projection Chart

IMPORTANT DISCLOSURE INFORMATION

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.

Technical Warning Signs Continue to Grow

With the May pull-back in the markets, the technical landscape for the market has really deteriorated. Momentum is clearly to the downside, and stocks across most sectors and market caps have been falling. There have been very few safe ports in the storm so far.

One of the dangers of aggressive bear markets is the increase in correlation across investment categories. When massive systemic risk shows up (and markets are declining on a broad basis), diversification is a less effective risk management tool. This is a large part of the reason behind the BigFoot Marco Indicators – to give some tools to manage systemic risk.

So far, the BigFoot Macros have been hanging in there (translation: they’re still long). Note though, these indicators are lagging in nature. The technical landscape can still offer some perspective on the markets.

A quick look at both the market cap and sector proxies for the markets shows a lot of negative momentum (note the background color of the charts below – the red background indicates a negative pricing trend for the rolling 3-month trading period).

Market Capitalization Proxies
S&P500 Sector Proxies

The chart below shows key areas of potential support and resistance over the next few weeks. The downside momentum is significant, with the 2679/2661/2609 areas looking like support areas worth keeping an eye on.

For the week, trying to predict where this thing is headed is a challenge. The negative momentum is significant. However, the markets have been triggered by trade war concerns. So any meaningful positive developments on these fronts could drive a sharp reversal.

The ‘black swan’ probability is pretty high right now.

IMPORTANT DISCLOSURE INFORMATION

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.

Tough to Handicap

The technical landscape is very ambiguous this week. Not only is it a short week, but we’re already at ‘over sold’ levels by many measures.

Typically you’d look for a market bounce in over-sold conditions. If so, the 2874 level (50-day-moving-average) would be the place to look. However, given the ongoing trade issues with China, the markets could be going through a more material overhaul of future profit expectations. If this is the case, there could be more pain before markets find traction.

The 2800 level is likely the key for the week. So far, this support level has managed to hold up. As long as the market can close above this level it’s a good sign. However, a close below this level — and, more significantly, a close at the end of the week/month below this level — would likely be greeted by additional downside.

The fact this is a holiday-shortened week falling at the end of the month may make for some interesting movement on volume.

The challenge looking forward is figuring out what could drive growth from here. With the trade war potentially handicapping future profits for a large portion of the markets, the stage is set for a sideways grind. The stage does not seem set for a 50% decline (at least not yet), but it does not seem set for a big push higher from these levels either.

Perhaps we will look back and wish we had ‘sold in May and went away.’ Then again, the total market decline has only been about 4% or so for the month. The bigger concern is the bleed in ‘long’ positions in the BigFoot database. We’ve gone from over 80% long signals to now below 60% long signals. This may simply be a reflection of the spike in volatility. Then again, it could be a sign of something more.

Frankly, this trade war with China is on the verge of becoming a very real issue. This kind of event can lead to structural changes in our economy. Those changes are yet unknown. But we can likely expect the technical aspects of the market will shoot first and ask questions later. Stay tuned…

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