A Simple Look at the Numbers

Last week saw stocks reverse and climb in the latter half of the week.

Chasing down the why is an odd game these days. Is the Chinese economy going to collapse? Price of oil to climb? Supply chains wrecked? US debt default?

Your guess is as good as mine. Regardless, there seems to be a wall of worry. And folks seem to continue to climb it.

With the markets now eyeing their all-time highs again, what are the simple numbers for the week?

Monday futures indicate a lower open for the indexes. The first level of solid support for the SPX looks like 50dma at 4437. Below that, more significant support should be at 4395 (which may as well be 4400, because this market has been bouncing around between the ‘big fat round numbers’ a bunch anyway).

Resistance is at 4475. And again, it’s one of those suspiciously round numbers. But this was, in fact, the actual intra-day high on Friday. And it appears to be the resistance area to watch as last week’s trading range finished in the over-sold area.

The question of whether or not a rally will close out 2021 is still up in the air. The longer-term projections were actually a bit lower than where the markets currently sit. However, those projections were built on old data.

As of right now, the markets seem to have a supportive bid to them. However, there’s yet to be ‘escape velocity.’ This week appears likely to continue sideways in the 4400 range for 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.

TBD…

Actual commentary to follow. But the basics are this – looks like the market is still moving sideways from here. The technicals suggest neither a big run higher nor a big drop from here. And they’re pretty well betting Washington solves the budget problems. Now the question is how much additional spending to build into the future expectation. TBD…

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.

Q3 Wrap Up Week

September has managed to live up to its reputation so far, with both a spike in the VIX and a drop in the SPX. And futures are not indicating a big rally to take out prior highs this week.

When looking at pricing behavior last week, markets got yanked around. Monday was a big down-day, crossing below the 100-day moving average before rallying back to find support and close just above the 50-day moving average.

Much of the decline seemed to be driven by the problems stemming from China’s Evergrand real estate tital and the possible failure of about $300 billion in debt. While that story continues to evolve, the Fed stepped in to reassure the markets the cheap-money punch bowl was not going to get taken way too quickly. Whatever the catalyst, the markets charged higher again to end the week in the black.

For this week, it looks like the range to watch is 4407-to-4778 for the SPX. With the quarter coming to a close there it’s unlikely there will be too much of a push higher in price. Instead, look for the VIX to come back down some as markets begin to reposition for Q4.

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.

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.

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.

No Changes Yet

If you want insight into what’s going on in this market, join our forum call this Thursday the 9th.

The big takeaway from everything technical right now is ‘the trend is your friend.’

This market just keeps going higher. And, despite all the doom-and-gloom predictions that the end of the world is imminent, the markets seem unaffected (for now).

So the question isn’t whether or not this market will correct (it will). The question is when does it happen? Well, this week should be interesting. It’s the first week that extended unemployment benefits end. So now we start to get a sense of whether inflationary trends really are transitory or now.

If inflation is transitory — if people go back to work and supply chains ease — if wage inflation slows — it’s a sign the Fed can take its time with monetary policy. Markets should view this positively, perhaps pushing even higher in anticipation of a long and drawn-out tapering process.

BUT… if inflation is less transitory than the Fed predicts (anyone wanna bet a dollar?), then markets may react differently. Current pricing models have the cost of capital at nearly zero. If inflation is deemed more significant, it’s going to blow up a lot of those pricing models. This should, in turn, drop PE ratios as stocks re-align with a likely shifting risk-free rate of return.

So, like a broken record, we continue to watch the Fed. If the cost of capital isn’t changing any time soon, there’s little reason to see the markets change much from here. If it is going to change, look out.

But here’s the trick. Markets only need to perceive things are changing. Because the stock market is typically a leading indicator of economic activity. Soooooo… we’ll have to see if investors get spooked or not.

Until then, the technical data says this thing is going higher. So… we watch and wait. Look for a test of 4560 on the SPX this holiday-shortened week. Support is at 4500 (because, really, there’s not really a support level until all the way back at 4470, but participants are looking at the round numbers again… 4500/4525/4550… you get the idea).

Here’s the latest technical guesswork:

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.

Out of Order

Last week the SPX hit yet another all-time high. Meanwhile, the FOMC is talking out of both sides of their mouth, with individual committee members talking about the need to tighten policy, while the committee itself continues suggesting it will be — another year(?) or more — before any material shift in policy.

Markets apparently like this. The technical pattern has very little short-term movement to work with. All signs suggest this thing simply keeps going higher.

Presently the SPX looks over-bought relative to most measures. However, volatility has been so low there is not much support anywhere to consider during a retracement.

This presents an interesting technical dilemma. On the one hand, the pattern keeps climbing higher. So, until something changes, the bulls stay in charge and we simply see where this goes. On the other hand, should something material shift, there is not much of a line in the sand where investors have fought over price.

If sentiment were to shift, SPX support levels are currently about 7% and 12% lower than the current price point. There’s just not many anchor points on this wall of worry. A slip, and it’s tough to divine where the stopping point is.

For the week, indications continue to suggest this market keeps climbing. And it certainly can – until it doesn’t. September is historically a volatile trading month – often with negative outcomes. We’ll need to keep an eye on things. Markets do not have a history of simply climbing higher for weeks and weeks without at least a few pull-backs along the way. And, as of right now, markets have been climbing since about May without more than a 3-percent-ish pull-back. This certainly seems like really low volatility; maybe too 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.

The Hits Keep Coming

Last week the S&P 500 set yet another all-time high… before dropping… then recovering. What does it all mean? In short, it looks like the trend is unbroken, and the bulls are still in charge.

Despite all the chaos in the world – the very real inflation we’re all experiencing – and the very real catastrophe in Afghanistan – investors still appear to have no better place to put their money than the stock market. And the prices keep climbing.

Last week markets peaked on Monday before going on a back-slide. It took until Wednesday for the SPX to find footing. From there, the prices recovered. And by Friday, prices were back in the middle of the trading range.

Underneath all this action it looks like a minor price retracement wave was completed as the pull-back tested the mid-July price capitulation range. From there, prices began to climb.

Absent some other black swan style event that throws this market off its pattern, it appears, at least in the short-term, that yet another extension higher is in play – likely towards 4500 – and it could be as soon as this week.

This market is on a pathway that is hard to justify fundamentally. The technicals are suggesting a 4850-ish finish this year for the SPX. That’s another 9% from here (and into the ‘extreme’ upside target range set at the beginning of the year).

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.

Still Climbing?

Markets have reached an interesting point. The underlying fundamental data, because of the seemingly permanent low interest rates, still suggests stocks are cheap relative to bonds. But the technical data shows stocks in a more tenuous position, looking over-bought while simultaneously showing signs of declining volatility.

The big question mark seems to be inflation. Is it permanent or transitory? The mainstream narrative is that it’s transitory.

If the mainstream is correct, this market should continue to grind higher as the already strong economy continues to improve with improving supply chains. This should relieve some of the demand shortage and improve pricing.

On the flip side, wages are already higher and continue to rise. Unofficially, it appears the extended unemployment benefits have driven some of this labor shortage. Those benefits are supposed to be sunsetting. However, historically, wages are one of the few things that don’t re-set lower once they rise. So it remains to be seen if this wage inflation is transitory. And if it isn’t, will it lead to more permanent adjustments to market prices?

While the analysts sort this out, the markets have continued voting with higher prices. Last week, despite technical headwinds, the SPX managed to finish the week with another all-time high. This seems to be the trend, with the week starting out cautiously, but ending with more buyers.

Looking at the technical set-up, the markets continue to appear over-bought, but there is nothing that suggests the markets have figured this out yet. So things appear to be grinding higher until something initiates a change.

For the week, it appears the 4450 level is in the sights of the SPX. There should be resistance in this area, but it is not substantial. Look for the first level of support at 4395. And if you want to look at all the spaghetti-lines of support and resistance, take a look at the chart below:

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.

Looks Like Momentum Could Shift

Despite eking out new all-time highs for the major indexes last week, it looks like momentum may be starting to wane.

The SPX managed new highs last Thursday. This may signal further upside. A look at the daily charts isn’t where the problem shows up. It’s in the weekly chart, where the trading range was narrow and finished overall lower for the week.

This type of weekly pricing pattern often shows up near the peak of trends and often identifies a point of capitulation.

Analysts have been arguing for some time about whether or not Fed policy will be shifting in response to inflation. Thus far, the Fed has been steadfast in keeping rates low. However, there was yet another large reverse repo last week that largely went unnoticed. This short-term tool is used by the Fed to pull liquidity out of the markets. Read another way, they were reducing liquidity… aka higher rates.

Granted, a repo is a super-short-term event. So by no means does this indicate the Fed has changed course. But it makes this analyst pay attention. What if inflation is less transitory than believed? What if the recent spike in Covid cases leads to a new wave of policy response (as it has in Oregon, where masks are being required again in most public buildings and schools)?

If the Fed does change course, the underlying assumptions for pricing models will change. If the Fed doesn’t change course, that does not mean the markets cannot change course on their own. So last week’s weak pricing is a sign to pay attention to.

The near-term low would be around 4365. This is a likely figure to test this week. On the up-side, it looks like 4450 is the first level of resistance.

This is the beginning of August, and earnings season is well underway. By the end of the month, the bulk of earnings season will be over. It seems the theme is increased caution in future guidance. Last week’s pricing behavior certainly appeared to agree.

The real question is whether or not the Fed still has a handle on this thing. Their track record has been pretty good the past few years. But the historical track record has often ended with an inflationary run-up, ramping interest rates, and a recession. And the markets historically drop when it happens.

The good news… it hasn’t happened… so far…

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.

Climbing the Wall of Worry

While many continue to fear this market, it continues to climb the wall of worry. The pattern shows a likely pull-back from over-bought conditions. But it also looks like a likely recovery to challenge new all-time highs yet again (for the SPX).

The concerns start in August, where we’ll have to contend with the end of earnings seasons, next quarter’s expectations, and a Fed that’s been backed into a corner with rates as inflation concerns continue to grow.

It’s possible we’re near the highs for the year 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.