Trade Winds Improving

Last week markets got a pop on ‘less bad’ trade news as China indicated a partial trade agreement may be on the table. This could mean additional planned tariffs would be suspended.

Markets viewed this as a positive and finished last week with a strong push higher.

While the news is good, the technical set-up for this week may have a quick down-draft to fill in a price gap for the SPX. There is technical support around 2930 or so — right at the 100-day moving average (the 50-dma is only 5 points higher).

Interestingly enough, the market is neither over-bought nor over-sold. It’s pretty much right in the middle of its 21-day trading range. So positive news from here could lead to a push higher (especially if the small price gap created last Friday gets filled quickly this week).

This is the first technical sign that the markets could be setting up for a break-out to the up side in a while. There is still a chance the sideways pattern could simply persist, but the price reversal last week was a good sign the 2900 is significant support for the SPX.

For this week, look for a quick dip down, followed by a potential surge to the up-side. Breaching 3000 on the SPX is possible this week, although it is unlikely the all-time highs will be reached. It would take a more definitive deal with China to spark that kind of move.

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.

A Little Over-Sold

Markets still appear slightly oversold, even with a big rebound on Thursday and Friday last week.

In fact, all three of the major indexes (DJIA, SPX, NASDAQ) have recovered their buy signals. This is a sign that volatility is again on the decline as markets seek to find traction.

Most of the underlying technical data is positive at this point. So, from a probability standpoint, it looks like a lot of the damage may have been done last week. Looking forward to this week, there’s a price gap to fill for the SPX at about 2900/2911. This is not a significant technical issue though as recent trading has already worked through this area.

More likely, there is some downward pressure because of the two-day recovery rally and some short-term position adjusting. For now, the technicals do not reflect a significant pull-back to the downside. Rather, the 200-day moving average appears to be fairly significant support.

On the flip side, there appears to be little momentum to move this market to significantly higher highs in the near term.

So sideways still looks like the theme of this market, with a bias to climb slightly higher over the rest of the week. If the 200-day moving average gets breached, then it’s time to reevaluate. Until then, the theme appears unchanged.

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.

Ready Q4

End of quarter rebalancing may generate some volatility today. Otherwise, markets look like they are staged to continue their sideways oscillation.

There is little technically to suggest there is a breakout in either direction. Instead, it seems the all-time highs of the SPX remain resistance, and the 100-day moving average remains as support.

The big-picture story appears little changed. The Fed is supporting the markets by maintaining low interest. Trade war headwinds are preventing the stock markets from climbing much higher. So we remain stuck in this sideways pattern.

Until something material changes, it appears there is little the market should expect in terms of a major move in either direction.

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.

Oil Grabs the Headlines

Markets are set to open lower with oil spiking higher. This is after Saudi Arabia had two oil facilities attacked by drones over the weekend.

The US blames Iran. Iran claims innocence. Name calling ensues, and things quickly escalated to saber rattling. So, long story short, oil prices are spiking higher as some of Saudi Arabia’s production went offline. And, of course, markets are roiled because uncertainty is up.

Oil is an interesting deal. It is highly integrated into the entire global economy. So a shift is oil is a fairly systemic event. The real question is, does this little tiff lead to something more significant? Or does it simply blow over after a few days and life goes on?

Judging from the futures markets, stocks don’t seem terribly concerned… at least not yet.

Futures are down about a third to a half of a percent or so. But that’s not really that particularly out of the ordinary with stock markets already nearing their all-time highs again.

The set up, at least for now, appears to be a sideways move. This is encouraging as market participants are taking time to digest this news rather than knee-jerk and panic over it.

The key to watch for is contagion. If this issue becomes larger, energy prices in general could become an issue. Interestingly, this is not necessarily a negative for the US. In fact, if oil prices climb, it make be stimulative for job creation in the US. That could drive the dollar even higher as the US has shifted to a net oil exporter. Higher prices could spool up the Dakotas and shale production (something the present administration is friendly towards).

During the shuffle, keep an eye on some simple moving averages. Overall technical signals have been pretty consistent recently. Money continues to seek the safer corners of the equity markets. Fixed income has corrected recently, so it’s less also in less rarefied air now. That makes the 50-day and 100-day moving averages of the SPX useful barometers for the time being. They’re at roughly 2950 and 2915 respectively.

Bottom line, the US has a lot of oil. The instability in the middle east is a cause for concern, but it shouldn’t be a cause for panic. The bigger issue is how this gets handled. Stay tuned… and, as always, if something material changes, this blog will get updated as well.

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.

Keep Your Eyes On The Fed

The SPX may be in a sideways pattern, but the short-term momentum has shifted to the positive. Now all the analysts come out of the woodwork to try and explain why. Here’s the simple thing to do:

Watch the Fed.

If the news cycle isn’t going to change what they’re doing, odds are, the market shakes it off in short order and resumes its current trend.

This trend is not on fire. It is not likely to spike higher in the near future. No, it’s likely to keep grinding higher and higher — likely to and through all-time-highs — as the year moves on toward 2020.

Why? Because the macro story is unchanged. And we’ve beaten the drum enough — still in expansion, growth slowing, international growth slower than US growth, international rates negative, US rates ultra-low. All of this still forces money into the more conservative pockets of the US stock market – which creates a bid that keeps things from breaking down too quickly.

It’s still a TINA story — there is no alternative — and until we have a reason to change, we’ll press on.

Look for the SPX to challenge — and likely close above — the 3000 level for the week. Support is at the 100-day moving average around 2915. Any trading above this range is simply… ‘normal.’

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.

Estimated range of SPX for week of 9/3/19

Uncertainly

A perfect storm of uncertainty seems to be brewing for this week. But that uncertainty does not seem to be the kind that will significantly derail this market — at least not this week. It just adds to the drama.

The set-up for the SPX has about a 100-point range for the week. That’s pretty big – but the test is near the top of the range.

The range is built around the small head-and-shoulders pattern that has been forming over the past several weeks. The left shoulder peaked at 2954. So the movement of the SPX will be interesting here as we approach the potential right shoulder. Do we break up or down from here? (hint: the trend appears to be up)

With Hurricane Dorian slated to hit the East Coast this week, this test could be tricky. While the storm does not change the geopolitical and economic mix much, it will be a meaningful distraction to productivity in an already-shortened ‘back-to-routine’ week (does that even make sense?).

Typically activity picks up in September as kids across the country are back to school. There is no significant holiday between now and Thanksgiving in November. And the shortened work-week post-Labor-Day-holiday often suffers what many shortened weeks do – heightened volatility as the market crams a lost day into 4 (and yes, this is mostly anecdotal, but it certainly ‘seems’ this way).

With Dorian in the mix, the question is also whether or not there will be a measurable impact to the economy in the form of a slowdown in productivity or massive damage that requires repairs.

Bottom line, the international picture has not presented any significant revelation the market is trying to digest. So the news cycle will likely follow Dorian’s impact for this week, with some side discussion about Brexit and interest rates. Throw in some ‘I hate the other team’ political banter, and the week isn’t really that out of the ordinary.

The technical picture, strangely enough, appears to have volatility narrowing compared with prior weeks. The question is more about whether or not the markets find support at these levels and grind higher, or if we stay in a sideways pattern with volatility for a while.

If the story remains unchanged, the support area for the SPX is about 2854, with consolidation happening in the 2900-2950ish range. Resistance isn’t really a factor here – it’s simply all-time-highs. And if those are taken out, that’s a good sign. The concern comes if the market closes below 2825. A breach of this level could mean more significant downside to follow.

For this week, just hang on. There may be a few whip-saws, but the data indicating a more significant decline hasn’t shown itself yet. We’ll see how many headlines traders try to play off of though.

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.

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

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