Retrenchment

Thank you Veterans.

And for the rest of us market jocks, what’s the scoop for the week?  Look for retrenchment above SPX 2750.  In fact, look for 2800 this week as markets seek to find footing.

While the 200-day moving average should form some support, futures trading has been eradic over the weekend.   At first, futures showed a higher open.  But things swung to the downside as Europe opened and oil prices pushed higher.

This kind of pricing behavior is not necessarily predictive of anything other than folks repositioning over the weekend.  And since the range for the repositioning was relatively narrow, it may simply be noise.  Given last week’s strong move higher — after a 10% correction for most indexes — and a ‘nearly’ completed election — it looks like the markets are poised to start reclaiming some of their last ground from October.

One of the growing concerns is in the housing market.  Keep an eye on that in the coming months.  While stocks remain attractive relative to everything else, the housing market slow-down may be a sign that this almost-10-year economic expansion is feeling the affects of higher interest rates more than folks may care to admit.

It may sound funny, because mortgage rates in the 5’s are still historically low.  But, compared to mortgage rates in the 3’s, they’re some 30% higher than they used to be.  For folks that have never known higher borrowing costs in their lives (save credit cards), this could be a legitimate point of contention.

As a housing market aside, it’s going to be very interesting to follow what comes out of the massive forest first in California.  Not only has there been loss of life.  There’s been massive loss of property (which may actually be stimulative for the housing market).  There’s been massive strain on infrastructure.  And it’s called to the forefront some of the questionable Federal forest management policy that’s lead to these massive fires.  (Admittedly, this is something personal for me as the Pacific Northwest experiences fires every summer.  However, with only 4 million or so people in Oregon, there are not enough votes to seem to move the needle much in Washington.  But have this happen in California, and now we have your attention.)  Federal changes in forest management could potentially unlock a lot of value in timber.  If this were to happen, the housing markets would need to be reexamined.

Look for some early volatility this week as markets find their footing.  As long as the SPX stays above 1750 or so a recovery trend is still probable.  A close below this level and we’ll have to reconsider whether the Santa Clause rally is really coming to town.

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.

Volashmility

Since volatility seems to be on vacation, there’s little point to looking into the future of the data to try and divine anything.  The markets want to go higher until something convinces them otherwise.

For the week, look for 2575 to continue to be the next level of resistance, and the 2550 level to be consolidation/support.

This won’t go on forever… yet there’s still no end in sight.  Go figure.

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.

Bull Markets Don’t Die of Old Age

Bull markets don’t die of old age.  So what kills them?

Changes in the investment landscape, and changes in investor sentiment.  Something skews the supply and demand curve.  And typically, it’s the demand that changes, not the supply.

So what would kill the current bull market?  Something…  But has that something occurred?  Evidently not.

With Washington DC essentially paralyzed (aka unable to get out of its own way and so dysfunctional there’s no end in sight), the market seems to be eyeing two key factors:  the Fed, and earnings.

The Fed has telegraphed most of its moves pretty well.  So earnings have been the key to watch.  According to Factset, as of last Friday, 53% of S&P500 companies have reported earnings thus far.  Of those, 73% have beaten estimates.

This does not sound like a scenario where a bull market is ready to die.

With the current PE ration of the S&P500 creeping up to approximately 24, the valuations are getting higher.  But the last two bull markets ended much higher.

The trick with any bull market run is to follow the lemmings toward the cliff, but to stop before they jump off.  Where exactly that cliff is is debatable.

For the week, it looks like we’re setting up for last week version 2.0.  There appears to be technical support forming at the SPX 2460 level.  If this holds, there may be another run at 2500 this week.  This area is resistance for the week, with 2473 being the first level of support, and 2460 being a more significant level of support.

Don’t expect any major moves higher, as 2500 is just over 1% higher from here, it’s more likely the markets will have 10-point moves over 3 or 4 days than a single 30-point day to challenge the 2500.

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.

Zzzzz

If you’re looking for inspiration from this market you may want to check a few weeks ago.  It seems the Trump Bump is about done.  Now the reality of the numbers is coming back into play.  And the 2400 level seems a lot more significant after a month of resistance and consolidation.  There’s little indication this will be the week things finally break higher either.

Oil seems to be the niggling problem.  Now that the black liquid has fallen below $50 a barrel many of the other economic assumptions around inflation and growth don’t pencil the same way.

We’re also getting a political reality check.  Despite the appearance that Republicans have a majority in both the House and Senate, there seems to be little agreement among the majority party.  This calls into question exactly how much will really change?  (It also illustrates just how fractured the system really is.)  Net result:  uncertain headwinds to counteract the optimism of a more business-friendly administration.

Looking forward, there’s little on the horizon to indicate significant change this week.  The Fed already raised rates.  The markets yawned.  And yields actually dropped.  We’ll see if the trend continues, but the foreshadowing is interesting.  With the exception of the NASDAQ, major indexes peaked on March 1st and have moved sideways-to-negative since then.  We’re entering a fourth week with no breakout — higher or lower.  It’s starting to “feel” awkward.

For the week, continue to look for 2400 to be major resistance for the SPX.  2355 is support.  But support appears to be weak here.  If it’s breached, there’s a vacuum down to about 2325.  Overall, there appears to be more downside pressure than upside potential for the 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.

Earnings are Back in Vogue

Now that the Fed has all but assured the markets it will raise rates in December traders are shifting focus to something interesting:  actual earnings.  Are companies actually making money or not?

If the technical situation is any indication, markets are disappointed so far.  Last week saw all the major indexes head south.  Perhaps more significant is the BigFoot Database now showing signs of deterioration.  All three major indexes have either hold or sell ratings on them.  And the database went from about 75% long down to 69% long.  That’s a pretty good macro shift toward caution.

The SPX echoes this sentiment.  It is now trading at the very low end of the multi-month trading range, hitting intra-day levels not seen since July.

Setting aside the distracting data of the election and much of the mixed fundamental economic data both here and abroad, is the market signaling anything?  Almost…

Being at the bottom of the trend channel does not in and of itself mean this trend is dead.  However, there are some concerns.  The market seems to have already priced in a Clinton victory.  It seems to be moving on now — past politics and the Fed — looking at earnings and global markets.  The backdrop is very mixed.  Many analysts will point out the idea that a rising rate environment should be strong for stocks.  I suggest they’re missing a key point though:  rates are rising because the Fed needs to reload their gun more than they’re rising because markets are healthy.

Too many central bankers are involved with currency manipulation to call this a “normal” market (in my opinion).  It’s messy.  And it muddies the waters of data interpretation.  Are things getting better?  Worse?  And is it happening on its own or because of artificial manipulation?

Here’s the bottom line:  earnings had better grow if this market is going to go any higher without a pull-back first.  Despite what folks may paint as a rosy backdrop for stocks, sentiment is nervous.  We’re watching perhaps the most polarizing election in the history of our country.  Too many people are invested on one side or the other.  There will be consequences.  And it’s tough to paint a picture where the markets don’t have a pull-back after the election now regardless of who wins.

There seem to be three scenarios brewing:  1) markets pull back for the next several weeks heading into the election, pricing the concerns in in advance, with a return to the current trading range post-election 2) markets trade sideways-to-slightly-negative then react to the election with a melt down or a melt up, or 3) markets pull back leading up to the election, get surprised, and drop significantly, or 4) markets find something to get excited about and start climbing higher.

If I had to guess at the odds of the above scenarios, I’d put options 1 or 2 at about 40%,  option 3 at about 15%, and option 4 at about 5%.

For the week, the market looks like it may find support at the 2120 level.  If so, look for a retracement toward the 50-day moving average at 2165, or the 100-day moving average at 2141.  There appears to be about a 60% chance the markets will drift toward the 2165 level again.  However, should the markets close below 2119, support falls to 2000, then all the way down to about 2170.

screenhunter_113-oct-17-06-20

IMPORTANT DISCLOSURE INFORMATION

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

Technical Update

Since we’re in May — and everyone is wondering whether or not a bear market is on the way — I figure a decent technical update is in order.

Here’s the summary for the week —

ScreenHunter_74 May. 09 05.37

At present it appears the market is supported by the 50-day moving average but still range-bound between the April 21 high and the April 7 low.  It appears unlikely the SPX will break above 2100 this week, so downside support is the bigger factor to consider.  Should the 2040 support area be breached a test of the 200-day moving average just below 2020 would likely materialize.

Futures are indicating an open to the up-side this week, but momentum is weak.

The economic calendar is also light, with oil data Wednesday, jobs data on Thursday, and Retail Sales numbers on Friday being the biggest likely market movers.

ScreenHunter_75 May. 09 05.38

Overall the market continues to be stuck in a multi-year sideways pattern.  It’s really a bit silly to call either extreme of this range support or resistance.  There’s been far too much economic and geopolitical manipulation over this time period to view this data as normalized.  Trying to divine a pattern in an environment of manipulation implies the same form of manipulation will continue moving forward.  Personally, I’m of the mindset that we’ll see all new forms of manipulation that aren’t yet represented by market patters.  That makes intermediate-term patterns less reliable in this analyst’s opinion.  The bar has simply been moved.  “Normalized” data will likely require future filtering.

ScreenHunter_77 May. 09 05.40

Taking a more intermediate view of this market (looking over the past 6 to 12 months of data) the chart above shows the SPX at an initial support range of 2050(ish).  Note the 50-day moving average as at the bottom of the support bar (shown above as the top red bar).  The next level of support is about 2000 (shown by the red bar second from the top).

Given the current price of the SPX — and the slightly over-sold condition — there is reasonable support at this price level.  That would indicate a potential climb back toward 2100 over the next week or two if support holds early this week.

ScreenHunter_76 May. 09 05.40

The above chart has a lot going on, but the big takeaway is the change in slope between the white and red trend channels.  The red channel (a linear regression channel) is flattening, indicating building support at these price levels.

ScreenHunter_78 May. 09 06.03

The last thing to discuss is the position of the BigFoot database at large.  At 86.52% long — with the majority of those long positions being actual buys (as opposed to waits) — there is a lot more technical momentum behind this market than your gut may tell you.

It appears the story that sells in the media right now is the “this bull market is old and a bear is eminent because earnings are declining and multiples can’t be justified at these levels any longer.”

There’s an old expression — a broken clock is right twice a day.  So sooner or later, a bear market will emerge.  And when it does, a lot of people will claim “I told you so.”  The data just doesn’t indicate that the clock is right today.

At the end of the day, data is usually more reliable than our gut.  That’s why we invest with a system…

 

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.

 

Sell in May or Stay and Play?

I’ll spare you the data dump and get into the good today.  We’ve all heard the expression “sell in May and go away,” but do the numbers play out?  In short, they don’t.  It’s a superstition.  The same way the Superbowl winner can predict the outcome of a market.

The data matters more.  And right now, the data is muted GDP, above average multiples and three consecutive quarters of declining growth.  Pair that with the fact this market hasn’t seen a new high since last June and you’ve got the second-longest bull market in history.  So we should sell in May and go away, right?

But isn’t this an election year and don’t markets usually go up?   Or wait, does the mean the Fed is less active?…  you’re over-thinking it…

Brass tax:  the market continues to behave in a sideways pattern, currently bound between 2000 and 2100.  There is a fair amount of support at 2042, and a fair amount of resistance at 2084, with 2072 still being a pivot — where the market sets up a consolidation move above or below this threshold.

We have a lot more technical support than you may realize.  Despite what your gut and gloomy media reports may tell you, the data is strong.  Credit, economic, and market indicators have all gone positive.  The BF Database is presently over 81% long now.  A lot of things have to align to get this much technical data moving in the same direction.

We need to see more growth in earnings.  A few good signs and this market can run up to about 2225.  Without it, we remain in purgatory waiting for enough bad news to trigger a legitimate bear pull-back.

As far as the Fed is concerned, we’re in Goldilocks land.  Growth is too weak to raise rates, but still positive enough to create a strong dollar.

The summary for this market:  there will be winners and losers in this market in the short-term, with ‘overall’ stocks still in a sideways range.  The dollar is strong and commodities are weak.  A close above 2135/2141 or below 2000/1991 should raise your blood pressure – one for the right reasons, the other not so much.

So buy  your European sports car now.  These conditions won’t persist forever.  If we somehow manage to survive the election cycle without a major market correction, 2017 is looking promising for bears.  Until then, sell in May if the process tells you to.  Otherwise, skip the nursery rhymes.

ScreenHunter_72 May. 02 06.20

ScreenHunter_73 May. 02 06.21

ScreenHunter_74 May. 02 06.23

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.