Correction Territory

Don’t look now but the BigFoot Database is turning bearish.

Both the S&P500 and Nasdaq flipped sell signals in the last few days. Only the DJIA still shows a buy.

There’s been a 25% reduction in the number of long positions for the BigFoot database, as the system has silently declined from close to 85% long down to barely over 64% long today.

Compound all of this with the lousy open futures are indicating, and it’s a recipe for the major indexes to slip into correction territory this week.

This will officially ‘break’ the August trend the markets have been enjoying. In fact, several of the big tech names that lead the markets higher in the last rally are entering bear market territory.

While the fear for many is that the economy is going to break down (as we still see many supply chains broken), this is a premature call. In healthy markets, pull-backs are normal. It’s common for traders to sell off profitable positions and ‘rotate’ into other asset classes.

In periods of rotation, markets often pull back to other to previous high levels before the most recent trend. If you’ve ever been on one of our forum calls, you’ve seen this discussed in the technical market review. “Wave overlap” is a common indicator market technicians look for. It is the point at the top of bottom of a prior trend reversed course. When the most recent trend changes, it’s common for markets to move back to a prior high or low in order to ‘test’ buyers to see if those price levels will hold.

With election anxieties climbing, it is not surprising the markets are taking a breather and giving back some gains. The better question is, will this be the start of a the next bear market? Or are markets simply experiencing asset rotation?

This week will be a valuable data point. It will be the fourth week since the S&P 500 peaked and began its pull-back. It is also noteworthy that the downside projections alight with multiple prior wave peaks.

The extreme for the week is down near 3200. That’s a decline of about 3.5 percent; no fun, but survivable. That is also just a shade below the 10% retracement level, which would make the move an official correction.

Perhaps it’s a healthy move for markets. However, it’s a fairly extreme move. What the last several months have shown is that these markets can move in aggressive fashion. The declines in March happened in just a few weeks. So when it goes, it goes quickly.

And a four-week correction would be pretty quick. In fact, the SPX is already looking over-sold going into this week. So, while an outside possibility, there is still potential that some will ‘buy the dip’ at this point. Many of the large tech companies — the same companies that were viewed as the safe havens in the last pull-back — are trading at prices not seen since July.

So this week stands to be important in the analysis picture. To buy the dip or not? Given the nature of Washington, it may simply be that markets move sideways for the next several weeks. If markets find a foothold here, it sets up a sideways and somewhat range-bound scenario between now and the election.

Here are the critical numbers for the week:

Support: 3265 / 3218 / 3204

Resistance: 3343 / 3393

Odds are pretty good that things don’t melt down further from here… no guarantees of course. But there is a lot of support over 3200. A failure there and we’ll have more to discuss.

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.

Tech Corrections

Let’s call this market pull back what it is: a pull-back in mega-cap tech.

Since Big Cap Tech has become the largest players in most of indexes, a pull back in this segment of the market has the affect of dragging down about everything. So, last week, down it went.

A quick look at the ETF ticker FDN and you’ll see that tech is officially in a correction (so more than 10% decline).

This is not to say other segments of the market are immune. Many sectors of the market dropped last week. But tech seems to be the tail wagging the markets.

Technically speaking (no, this is not a euphemism, we’re talking about using technical/quantitative analysis here), the markets may have found a foothold here. If so, look for volatility to remain, but we may see pricing begin to drive back toward SPX 2425 this week.

If you want to get into the details behind this number, it’s simply the nearest round number to a mid-point of about a calendar month of trade data. Last week markets traded up over 1.5 standard deviations from the 21-period trading average (trading days, so about a calendar month). When the selling started, the markets declined to about 1.5 standard deviations below the same period. So, for this week, look for things to oscillate back towards the middle… from over-bought to over-sold back to the middle of the range.

The S&P 500 50-day moving average is at 3331, That’s a likely area for support this week (even if the markets dip below it intra-day). If this support area fails there could be an extended slide lower. We will address this in next week’s blog.

For this week, look for volatility to remain, but for the bias to be slightly positive as large-cap tech looks to likely regain some of its lost ground.

SPX may move towards the 3425 range after shedding some volatility this week.

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.

Assessing

If I had to guess, I’d say buy the dip… but maybe not until next week. (But because we’re pro’s we can’t make recommendations without all kinds of blow-back, so this is NOT investment advice, and I’m not suggesting you actually do this – I’m just, ya know, throwing it out there in the ether for all to ponder.)

Call it a hunch.

Buried in all the chaos of last week’s abrupt sell-off is the nagging fact that markets had been on a low-volatility tear for several weeks. August had been a fantastic month for bulls. Stocks were up big almost across the board. But big tech? Or, perhaps more appropriately ‘spec tech’ ?

The expression goes ‘bulls don’t die of old age.’ Experience says this is true. But experience also says sometimes profit-taking happens. And we’re (less than) two months out from an election and tech valuations were reaching 1999 levels. This shouldn’t really come as a surprise.

From a technical perspective, all this looks like is a healthy pull-back so far. It would take the S&P 500 retreating below the 3325 level to signal a more significant trend breakdown.

Is it possible? Of course. But what fundamentally changed in the marketplace? What new information is the market digesting? Did the Fed signal a change in course? Did we learn something new about anticipated changes in leadership in Washington? Did we see any significant changes in international trade or commodity pricing?

Mostly, we saw some areas of the market got really expensive, and assets started rotating out of those areas.

Will weak areas of the market start to catch up? Hard to say.

Will tech recover? Also hard to say… but several stocks are off nearly 20% or more in a short time. So it’s possible money will jump back into the tech trade soon.

September has a lot of superstition around it. So do election years. So do years where you’ve had pandemics and the markets had full-blown bear pull-backs. And so do years when the governments throw so much stimulus at the economy it breaks all the models.

The reality is 2020 isn’t normal. Trying to fit it into some kind of analytical box is exactly what it sounds like – data fitting. This is likely a fruitless endeavor. We’re simply coloring outside the lines right now.

When looking at the BigFoot database, there has been no significant changes. There were some sells (a shift of about 4% lower in terms of overall long weightings), but the bigger move was to caution as the wait signals increased. Both the NASDAQ and S&P 500 shifted to wait signals – the DJIA still has a buy.

Thanks to Labor Day this is a shortened trading week. The typically means increased volatility. But then again, it’s September of an election year, so do we even need to discuss this?

For the week, look at major support near 3325. A breach of this level would be more serious. Otherwise, it’s likely part of a more typical pull-back than a break in trend. It’s unlikely we’ll see the markets push new highs for the week. Instead, look for a negative start to the week with some consolidation — perhaps even some recovery buying in hard-hit areas of stabile large-cap tech. Spec-tech (speculator’s tech) is likely to continue getting knocked around as novice retail investors panic out of the markets some.

Hang in there… could be a wild ride…

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.

Let the Games Begin

Last Friday finished at all-time highs for the SPX. Today, Futures look to open flat. Tech giants continue to drive this market higher. The rest of the market may even be starting to gain a bid. But there’s an elephant (and a donkey) in the middle of the room: the election.

A lot of folks are betting the future of this market on the election.

It’s tricky, because on one hand, things like tax policy and the idea of being ‘business friendly’ look so vastly different on paper. On the other hand, both parties seem to spend more than we have, make promises they can’t keep, or generally point fingers at the other team only to do the exact same thing they cry foul for when it’s their turn. So perhaps it’s less different than many care to admit.

Regardless, the reality is the election is two months away, and market participants are very interested in the outcome. It’s a classic backdrop for volatility.

Currently volatility has been on the decline and seems relatively benign. We’ll see if September’s historic reputation of being a challenging month for the markets lives up to the hype.

For now, the technical picture remains mixed: a strong uptrend that appears to be continuing, with an odds-beating sequence of positive returns that begs for mean reversion.

Since we’re already at all-time highs there really isn’t ‘resistance’ for the markets to the up-side. There’s just a general trend that continues. And that trend extends up near 3450 for the S&P 500.

Support is a slightly different game. At all time highs, we can look backwards in time for key areas the market once challenged. In this case, the stand-out support area appears to be the previous February high-water mark at 3393.

Markets are pretty tricky to call when they’re achieving all-time highs. The temptation is to believe they must fail first. This need not be the case though. In spite of all the chaos and theories that this market must go down before it can go up, markets can rise to even-all-time-higher levels from here.

The critical question to ask is: where does the money go if it’s not in the market? And are folks willing to sit on the sidelines and watch things go higher?

Mechanically speaking, markets can rise on thin volume (in some cases easier than on high volume). So a rising market does not need a lot of believers; it just needs more buyers than sellers. And since the Fed has made most everything else pretty unattractive to buy, you can do the math.

So as we send off August, send the kids back to school (or do we???), look forward to an election, and the upcoming holiday season, we’ll see how things evolve. So far, the market is not forecasting its own demise. But we’ll see if the fears of would-be-stock-buyers manifest in a self-fulfilling prophecy of bear stampedes… or not.

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.

Danger Zone

There’s two kinds of danger zone — the kind where things are dangerous, and the kind where you’re crankin’ out Kenny Loggins while having a great time. The current stock market could be both.

Futures are set to have the S&P 500 and NASDAQ both at all-time highs… again. And the week looks to be positive.

Why?

Much of it has to do with mega-cap tech climbing through the roof. It’s obscuring everything underneath the surface of this market because it is doing so well and it’s so big it just kind of eclipses everything else.

The other reasons are much of what we’ve discussed for a long time — Fed suppression of interest rates means risk is mispriced and money is forced into the markets; stimulus and money printing had to go somewhere; and the short-term favorite: irony.

Irony is not a real market rationale, but it seems to fit the bill. The irony is that the markets are going higher in spite of an unstable political, social, and economic environment.

In short, the market either knows something we don’t, or it doesn’t care as much as we do about all the social non-sense we’re struggling with.

This is not to say the issues don’t matter. In fact, they may even matter to the market. Just… not yet.

It appears that risk appears to be getting mispriced all over again. When you see a company like Tesla priced over $2100 a share with a PE Ratio of nearly 1100 (while Apple has a PE of about 38) one has to question the sanity of the markets.

The VIX has been on the decline, tech PE’s are astronomical, and the markets are at all-time highs… while unemployment is near-all-time-highs, the entire national education system is in a tailspin, and a pandemic is still happening (at least we’re told it’s a thing – and I suspect the people that have Covid will tell you it’s a thing, even if you don’t think it’s a thing).

In short, there are plenty of reasons to question the sanity of the markets. And yet they go higher…

This is the classic definition of momentum. Climb the wall of worry. Low volumes, higher volatility, and higher prices…

Well, it works until it doesn’t work. And the bigger fool theory works until you run out of fools. But how long does that take?

If history is any indicator, September we may start to see volatility return. We may see another stimulus package. We may see more manna from heaven in the form of checks to unemployed. Heck, we could even see another round of PPP loans for small businesses.

But will we see the markets keep going higher?

Statistically speaking, we’re getting into rarefied air up here. Markets have now extended gains since late July, with only 12 negative days for the S&P 500 since June 29th. That’s a pretty solid win streak with volatility dropping like a stone.

Probability suggests if we flip a coin, each individual outcome is 50/50 heads or tails. And each coin flip is an independent sample with the same probability of outcome. But gaming theory suggests the probability of flipping heads 10 times in a row, while possible, is well below 50/50.

So which is it? Does the market keep going higher, or does it correct?

The best we have is an educated guess… but here’s the guess: for this week, markets go even higher… because there seems to be little in the path of the bulls, and there are still bigger fools out there afraid of missing out.

This thing will end badly for some people. It’s reminiscent of the 1998-99 attitude in some of the tech areas of the market. “This time it’s different.” Sure… because history doesn’t repeat itself… but it rhymes.

For this week, just look for things to go higher. SPX support is at 3360, and resistance is at 3450-ish… there really isn’t resistance per say, just a big number the market hasn’t tested yet. So at some point there will be some sell off just because traders will get impatient and want some profits. Still… wild times.

As we’ve said before: keep doing what the market tells you to do until it tells you to do something different. Or, said another way… run with the lemmings, just stop when you get to the cliff.

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.

S&P 500 New Highs

Despite the soft finish last week, the overall trend for the S&P 500 remains positive. In fact, it was really close to breaching its all-time high last week. And, as of now, futures indicate it should hit new all-time highs Monday.

The trend appears to be all that matters right now. How is the trade evolving?

In an election year, with a controversial pandemic, with the Fed printing money, and Congress debating more stimulus, there’s a lot of guesswork to this market. Stocks are pricing in what they can and waiting to see what new information shows up (what else is new? Stocks always do this). So, follow what the market is showing us.

As of today, there’s been a two-month ‘melt up’ with very low volatility for the SPX as it has recovered to near-all-time-highs again. And this has been in the face of all the economic uncertainty out there.

So the trend is pretty straight-forward: the markets march higher.

This has been a difficult market to have confidence in given the massive government intervention in the way the economy operates. Between major shut-downs in public facilities, schools, restaurants and recreation, we’ve seen some permanent changes in our economy. Some jobs are gone… like… gone gone.

And now the clock is ticking on unemployment benefits and the political gamesmanship is at hand.

Yet the trend is pretty straight-forward: the market marches higher.

If we’ve learned nothing over the past few years, it’s that the Fed has forced the market’s hand in many regards. By keeping rates low (ostensibly in the fight against deflation), money was left with little option but to seek risk in the stock markets. The risk/reward profile was — and is — simply unattractive for the rate of return what gets parked in cash or cash-like assets.

So, money flows into the stock market. Stocks go higher.

The kicker is, it keeps working until it doesn’t.

The Warren Buffets of the world — deep value investors — will say stocks are expensive and unattractive. This may even be true. But that doesn’t mean prices aren’t going higher from here.

When looking at the underlying quantitative data for the stock market, there is still a case to be made that prices go higher. Much of the performance in the indexes has been attributed to their over-weight to Large technology companies (do primarily to the way the indexes are constructed in the first place.) Smaller cap stocks and value stocks have had much less recovery that the large cap growth stocks. So there may yet be room for asset rotation and more growth in indexes.

So the first question is, does the market go higher? And if it does, do you ride get in here or wait for a more attractive entry point?

Only history will vindicate the answer to this question.

The quantitative story is somewhat in conflict with the economic narrative. The quant data says things go higher from here. Stocks are expensive, but the prices are justified by ultra-low interest rates and the fact that there is nowhere else to get much of a return on capital.

On the other hand, the economic narrative, at least in some circles, is one of structural economic damage on a global scale that will lead to a reduction in global GDP, an extended period of joblessness, soaring government deficits and debts, and large-scale credit defaults by both individuals, corporate entities, and unhealthy state and local balance sheets (and we won’t even touch the public pension debate on this one).

The question may be more one of time frame. All of the structural economic problems are real. And money printing doesn’t make them go away. Nor does infinity stimulus or universal basic income or any other free-money scheme. It just changes the pricing variables for the economy and temporarily masks a problem.

Nevertheless, the structural problems move slower than the markets. And markets can — and often do — get out well ahead of the economic data.

This appears to be the case right now as markets trend higher in spite of the uncertainties that lie ahead.

And, of course, in a week, this could all look different…

But for today, the S&P 500 is suggesting all-time highs this week, with a target number of 3422, and a challenge number of 3460. Support is at about 3333, although it appears unlikely we’ll test that low. Instead, look for generally lower volatility, new all-time-highs, and perhaps a string of a few all-time high closes for the index over the week.

And next week? We’ll do the analysis all over again. Until then, have a great week!

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.

Listen to the Market

Perhaps the biggest challenge of the day is separating fact from opinion. Indeed, most stock market analysis is just opinion. Sure, the fundamental data is real. Earnings are earnings. Projections are projections. So, numbers be numbers. But what does the data tell us? And how does it inform as to where the markets are headed?

In the midst of a highly divisive social climate, much of our news has been colored with editorial. The major media resources require eyeballs to sell to advertisers. That means ratings. And that means appealing to an audience. You get the idea.

So discerning what is going on in the investment markets can be tough.

Dollar weakening? Commodities rising? Yields dropping? Do we have inflation on the horizon? Will we see a wave of evictions as renters default on payments? Will the real estate markets collapse as mortgages go unpaid as a knock-on consequence? Heck, are there even any jobs for the middle class to earn enough to pay rent?

And how about stimulus? Unemployment? Government programs and government shut-downs? What is essential in our economy? What is essential to Washington DC?

True enough, these are compelling questions. And they do matter. Ultimately, the answers will sway economic outputs and valuations for investors.

But today? It’s still a lot of noise and conjecture.

So what do we know?

We know what the market is signaling. Behind all the editorial chaos, major indexes have been climbing higher.

On any given day, there are pull-backs. But overall, the trend across most types of assets (except energy recently) have been recovering over the past three months.

The concept is fairly straight-forward. If the markets are a voting mechanism, investors are still voting in its favor. Sure, there are some bigger winners or losers out there. But overall, the trend has been recovery.

This trend is difficult to find confidence in given the general media narrative and backdrop of a pandemic. But make no mistake, since the March lows, this market has experienced an exceptional recovery.

The year-to-date figures for the major indexes are uninspiring. But the recovery from the lows is a different story. How one frames the story is important.

So, knowing there has been significant recovery from the lows, what now?

(In my opinion) There has been an underlying theme to this market for the past several years. Lots of variables underlie this theme, but in its simplicity, it’s only two things: don’t fight the Fed, and TINA (there is no alternative).

The Fed, really since the Bernake administration, has been highly transparent in its communication efforts. In effect, it has demonstrated it will take extraordinary measures to maintain a stable currency and economy. And, since Washington has been largely ineffective for the better part of a decade, the Fed has stepped in with significant monetary policy to bridge the gaps.

The transparency has been useful for the stock markets. It has also contributed to the TINA situation, since the Fed has taken such remarkable steps to keep treasury yields low. Investors have been left with limited options to place risk capital and expect any kind of return.

What this has done is kept a bid under the markets for a long time.

Today, we’re seeing interesting shifts in market behavior. For one thing, there are now winners and losers. The pandemic has seen to that, as ‘non-essential’ industries have been hammered (or perhaps eliminated) by government shut-down.

Expect airlines, travel, hospitality, and many small businesses to take years (or perhaps never) to recover from the Covid shutdown.

Meanwhile, other companies have thrived. The ‘stay and home’ economy has gone bananas (a technical term). And the largest of tech companies have grown into trillion-dollar behemoths.

So why discuss this at all?

Because the mega-companies have become such massive influences on the indexes… and also on politics and culture. They have massive and incredible sway over how everything now operates.

Understanding this can help us understand the future of the markets. Microsoft, Google, Facebook, and the like do not require the consumer to walk into a store at all. So whether the economy shuts down or not, they survive. And they are all massive components in all the major indexes.

So, can markets keep going higher? Arguably, yes… despite the concept that we have major structural changes in our economy and many jobs are not only lost but gone.

Understand, bear markets are still possible. In fact, they’re probable. But it is also possible this market recovers and goes on to all-time highs (like the NASDAQ already has) before investors abandon some of the lofty names that have lifted the indexes in this recovery.

This is more of a mechanical issue than an economic issue. The money that is getting invested is likely going into these areas of the market.

At some point, valuations will be so stratospheric the bubble will burst… even for an Amazon or Tesla… but when is that day? You need go no further than the nearest financial media outlet to get opinions.

But what the markets are telling us today — from a technical perspective — is pretty straight-forward. Last week showed a possibility for correction. Instead, the markets has a weak break-out to the up-side. While we are over-bought by some measures, the trading pattern is indicating a move higher this week, with the possibility the S&P 500 will break above its all-time highs this week.

A close at new all-time highs will likely lead to further up-side from here.

For the upside, look for SPX 3400+ this week. For support, look at 3268.

Don’t get too invested in media headlines at this time. Until there is a material shift in information, the underlying thesis remains: the Fed is standing on the short end of the rate curve, and investors have nowhere else to go. That points to a higher stock market… (until it doesn’t, of course.)

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.

 

Quick Update

I’m on vacation so I’ll keep this quick. And because I’m lazy today, I’m writing in the first person. Oh well, I guess it’s a bit editorialized… like everything else in the news these days, right?

So the markets are in an interesting spot. The S&P 500 looks like it’s close to an intermediate resistance level at 3275. If this is the case, we could see the markets move a bit above this but a pull-back toward the 3150 level may be in the cards.

Several of the signals in this market are indicating slightly over-bought conditions. We’ve also seen a lot more activity in the small and mid-cap spaces in the last few weeks. We’ve also seen big tech get knocked around some.

All of this gives the ‘feel’ that values are getting lofty again as money starts shifting around.

The Covid stuff, of course, continues to be meaningful due to the major policy decisions that are still hanging in the wind. Will we see an extension of unemployment benefits? More stimulus? If so, markets can go higher. If not, then it’s time to take a more serious look at the structural changes to our economy… because we’ve hidden those with a few trillion in spending. But they’re not gone…

So here’s the quick summary:

SPX has resistance at 3275… we’ll probably blow past this on Monday (based on futures), but that doesn’t mean we won’t re-trace later this week.

SPX support is at the 50-day moving average, just above 3140. It’s about 4% lower than Friday’s close.

Also, the market seems biased to the ‘close down’ stocks again. The cynic in me is not surprised for many reasons. I’ll spare you my political theories and keep to the numbers. Just look at big tech vs airlines if you want to get a sense of which way the wind is blowing… 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.

13 Weeks

This week may very well set the tone for the next 13 weeks in the stock market. It marks one of the largest reporting weeks, with hundreds of S&P members reporting over the next five days. The results of this week – the guidance (or lack thereof) – will be the last report until about a week before the election.

The technical set-up for the markets shows one of rotation. The value portion of the market has under-performed its growth counterpart for months. Large caps have been the haven asset. But there may be some rotation on the horizon as market participants reach into the value and smaller-cap areas of the market for bargains.

As optimism grows over a Covid vaccine – and as yet another round of stimulus looms – it appears the irony trade is on the rise. Irony because so many assumed a mess would happen leading up to the election. So far, the markets seem to be indicating the opposite.

While it’s still possible the markets could pull back from here, the pattern has been one of consolidation with volatility on the decline. With money finally spreading to other areas of the markets – and large tech finally pulling back a bit – many of the signs are healthy.

There is another interesting element at play here. The US dollar is weakening. And with all the stimulus money, there may even be signs of inflation beginning to materialize. Low interest rates have continued to fuel the housing markets. The weaker dollar is fueling commodities. And, silently in the background, a bid is materializing under emerging markets.

All of these are signs the markets believe a path forward is possible (if not probable).

A look under the hood of the BigFoot Database reveals over 86% of symbols tracked have long signals. This is close to an all-time high. The three major stock indexes all have buy signals. And the credit and market macro’s are positive.

The economic macro is the only weird spot. While showing positive, the marcro remains “broken” at this time due to the extraordinary unemployment figures we still have. The data is simply so far out-of-whack the neural network doesn’t work yet. Fortunately (or unfortunately, depending on your belief system) stimulus money has kept enough money in the pockets of the unemployed it hasn’t shown up in the system as a catastrophe yet.

So earnings and guidance matter. And this week may determine, to a great extent, the direction of the markets for the next 13 weeks. If companies report either up-side surprises or guide positive, it could mean more up-side for the markets.

As of now, futures were positive overnight, and the major indexes appear to be biased to the positive. The S&P is likely to test the 3276 level, with a possible push towards 3000. Support is currently at 3157. Should the underlying trends of the market continue, look for large cap tech to flatten out or pull-back slightly as small and mid-cap value sees some asset rotation.

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.

Resistance Test Ahead

The S&P 500 is poised to test it’s June 8th resistance area this week. This could be a significant ‘tell’ for the markets if we’re able to finish the week above the 3233.13 intra-day high hit six weeks ago.

While major indexes have climbed for the past several weeks, the underlying technical data has been less confirming of this pattern. Many stocks, still above their 200-day-moving-averages have slipped below their respective 50-day-moving-averages. This subtle show of disorganization ‘under the hood’ of the major indexes is a small cause for concern.

On the other hand, looking at the BigFoot database, we now see 85.65% long signals on 11,375 tracked positions. The BigFoot Algos used to populate this database use volatility as a component of their decision process. So a high long percentage indicates that over 85% of the stocks being tracked are either buy or hold recommendations by the Aglos.

If there was pause to be had, it’s because the market seems to be reaching a point of agreement: volatility is low, the trend is positive, and the major indexes (not including the Nasdaq, which is already at fresh highs) are looking to test their prior high-water marks.

Points of agreement in the market can be a sign for concern if sentiment shifts suddenly. If you get more sellers than buyers in a market, prices can shift more violently. Of course, what causes something like this to occur is as much superstition as it is data. Are we simply “due” for a correction? No… but that doesn’t preclude it either.

If the technical pattern for the SPX means anything, it looks like more up-side on the horizon. The index put in a significant amount of support at the 3062 price area. A close above the 3233 area mentioned earlier would indicate a potential re-test of the all-time highs for the index.

The only issue here is that the SPX is less and less a reflection of the market at large. We’re beginning to see the mega-caps occupy such a significant portion of the index they are able to hide the activity of many smaller cap players in the index.

The phenomenon is being exaggerated as the mega-caps continue to grow. So we may be in a position of having to start tracking additional indexes to better discern the behavioral patterns of this market.

If one thing is certain in investing… markets change. Principles may not. But tactics must adapt as exploits are worked out of the system.

But for now, we work with what we’ve got… For this week, look for a sideways pattern with a bias to the positive. It’s unlikely to be a straight line up as earnings season is delivering a bag of both winners and losers. The SPX looks poised to challenge 3275/3300 this week.

We’re nearing the end of round 1 of government stimulus in the midst of the Covid crisis. The first round was fairly easy – everything was a mess and officials just wanted to do something… anything… so money was thrown around like confetti. This time around, there is more politics at play. And since political rallies are out, you can bet stimulus will be leveraged as a form of voter influence. So what stimulus looks like, how soon it gets delivered, or even if it gets delivered, are questions the market must sort through.

The Fed has shown it is committed to keeping the bond markets placated for now. But even that has supply/demand limitations. So don’t think the Covid stuff is in the rear view mirror just because major indexes have mostly recovered (look at the Russel value indexes if you want to see where the damage is).

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.