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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.

Rubber Meets the Road

Earnings season officially kicks off today, and markets remain poised to go higher. Now to find out if the markets guessed right on the data.

Most of the technical signals are shifting higher. All three major indexes have BigFoot algo buys. The database is back over 78% long. The Market Macro is positive, and both credit and economic macros continue to improve.

These positive signals will be an interesting dichotomy to the barrage of data surrounding coronavirus. Concerns over shutdown 2.0 remain, but the theme seems to be determined: companies that get to stay open, and companies that are location-agnostic (and to a certain extend, the companies that support them) have been the big winners.

The political environment is still toxic – nothing new there.

So we’ll see how earnings shape up. It’s early, and expectations have been set really low (like 44% declines expected low). So we’ll see how it shakes out.

If the stock market has it right, it priced in the damage early and quickly, and it’s now just re-pricing as the economy evolves. If the they got it wrong, things could get dicey.

For now, all indicators are the the 3275-ish level (the high-water-mark for the 50-day moving average for 2020) is the next resistance level to get challenged. A few solid earnings surprises and this could easily happen as it’s less than 3% from last Friday’s close.

For the week, look for an SPX resistance first at 3231, and next at 3275. Should markets reverse, support is 3111. If this is breached, a more significant down-trend could be signaled. Currently the probability of this occurring looks pretty low.

The BigFoot algo’s are reflecting a lot of positive momentum building in this market. The Macro’s are still showing caution, but they are also improving. The real issue continues to be Fed intervention in these markets. The “Fed Put” still seems to be a thing these days. And as much as things are a structural mess behind the scenes for real people, the markets seem more focused on the fact there are few better places for money to go.

So don’t find the Fed… still… for now… And we’ll keep watching the data to see if or when that changes.

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.

It’s Almost Reckoning Time

Stocks have enjoyed a break from the scrutiny of fundamental analysis since the breakout of Covid. But it’s been more than a quarter since the proverbial mess hit the fan. The question is, will markets continue to give companies that don’t offer guidance a pass?

With earnings season upon us, the expectation is that companies will begin to provide more insight how things are going in our new normal. It remains to be seen if markets can sustain some of the lofty valuations we’ve seen.

There have been some odd winners and losers in this market. Companies that should be okay haven’t been, and vice versa. In fact, we’ve seen some company valuations soar so much it’s hard to rationalize the price no matter what… and still they climb higher.

So here we are, in one of the most unusual times in history, looking for market guidance. And what do we get?

Well, the technicals are squarely in the sideways-and-let’s-wait-and-see camp right now.

Yep. Not predicting much yet.

Some analysts will say we’ve had a bullish reversal and the trillions of stimulus must push things higher. Others will say the economic damage is being hidden by massive stimulus and our day of reckoning is still ahead.

They may both be right. Markets could actually push higher from here as some companies surprise on earnings. But that doesn’t mean the structural damage to the economy isn’t real.

The experiment of modern monetary theory is playing out in real time at this point. We don’t really know if it will work or not… at least not long term.

Oh, sure, we know it’s working right this second. But we don’t know what happens when tax payments get skipped; when banks have to deal with rent forbearance; when unemployment bonuses run out… who actually pays for all of this?

And if the answer is ‘no one does,’ that’s where we probably jump the economic shark. Because the US dollar is built on the faith and credit of the US government… and one has to ask: how much faith can we have in a currency that has nothing backing it?

But for today… the futures are positive, and the markets have again held support near the 200-day moving averages. For the SPX, the 50-day moving average is back above the 100 (and may cross above the 200 in the next week or two). Heck, even the BigFoot Market Macro has flipped positive again.

So, despite all the concerns, the market is showings signs of recovery.

This is not to say things are healthy. After all, the ‘markets’ are heavily swayed by the mega-mega-market-caps of a handful of stocks. And tech continues to enjoy stratospheric valuations in many cases… But for this week at least, it seems all is well.

So we’ll watch closely as earnings season unfolds. The technicals have rebounded from March lows, and moved into a mostly sideways-to-slightly-positive pattern since early April. Now we get to watch earnings season.

For the week, look for a positive bias, but it’s still unlikely we’ll see escape velocity. Next week the earnings should really start to roll in. As they do, we should get a better picture of market health.

Look for SPX 3062/3000 support, and about 3210/3225 for resistance 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.

Holiday Ending Soon

This has been a quarter to remember. The world hit pause. We same the BigFoot Macro’s break (sort of). And the markets tanked… then rallied… hard.

Recall earlier blogs and forum calls – the discussion was about how fundamental data didn’t matter. The reason was because the Fed and Congress were re-writing the rules of the game on the fly. Stimulus, loans, loan forgiveness… it was all on the table.

Well, the markets rebounded as trillions of dollars got pumped into the system. But you can count the weeks since the market low: 13 weeks in the book. One quarter.

During the economic shut-down, most companies got a pass on earnings, guidance, and just about anything other than a discussion about whether or not they would survive. Companies that were well positioned for work-from-home scenarios benefited. Others, not so much.

So here we are. The economy is re-opening… likely regardless of what happens with the virus. The American public is divided. Camps have been chosen. Resolve stiffened. And the markets play on…

History has shown us that markets tend to think a quarter at a time. Long-term investors ride things out longer. But professional money managers, while sometimes long-term thinkers, will tweak and rebalance in the shorter term (some shorter than others).

When everything hit the proverbial fan, quarterly data went with it. It left investors with little more than educated guesses as to how things would play out in the future.

Well, the collective ‘pass’ given to companies during the last quarter — that is to say, a pass on giving much data or guidance — is likely coming to an end. It’s been 13 weeks — one quarter — and it’s time to start reckoning with the world as it now exists. Will companies thrive, survive, or otherwise in the post-Covid world?

So as Spring yields to summer, and Q2 passes the baton to Q3, it’s probable data will come back into vogue. And the question buried in the data is, when will valuations come back into vogue as well?

The Fed’s money creation and bond purchasing has stabilized the fixed income market to a great extent. But it’s left risk-equivalent yields all over the board. Sooner or later, markets are bound to address this.

So enjoy this week. The patter is sideways. The 200-day moving average is still holding at support at 3018 for the SPX. And the big fat number 3000 has held up will just below that. Given the nature of this week — few earnings, still too far out for election to be relevant, and the end of the forgotten data quarter — things appear to be relatively benign this week.

If anything changes, we’ll update the blog. Otherwise, look for a sideways-to-slightly-positive bias to the week with neither up-side nor down-side breakouts likely at this point.

IMPORTANT DISCLOSURE INFORMATION

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

Flirting with W’s

Last week volatility returned as markets took a turn south.

It’s difficult to discern just what caused the move. From a purely standard deviation basis the markets looked over-bought. But this is rarely a reason in and of itself to get markets to pull back.

Civil unrest? Maybe. Spike in Covid-19 cases raising concerns of shutdown 2.0? Maybe. Jerome Powell’s talk on future Fed policy? Maybe. Permanent job losses and higher long-term unemploymenet? Maybe. Over-ambitious estimates of 2021 economic growth? Maybe.

Pick what you’d like, whatever it was, the markets peaked Monday then went on an aggressive 4-day slide ending the 3-week positive streak.

The spike in volatility may bring technical analysis back into vogue temporarily as markets seek to find support.

Based on the last several weeks, support looks to be showing up in a few key areas: 2944.99 / 2903.24 / 2860.95

The 100 dma is at 2944.99, the 50 dma is at 2903.24, and the slightly more controversial low in the 4-week pattern for the 21-malg is at 2860.95. The malg (moving average linear regression) actually printed back in April. So we’re talking about a pretty aggressive slide to give up all of May and June’s gains to roll back that far.

Resistance isn’t really worth discussing right now. The discussion is about whether or not the markets will find a footing. And there are a lot of variables the markets are trying to price in right now. Pricing in structural changes to the economy can be tricky.

Last week definitely put a damper on momentum too. The BigFoot database seems to have stabilized as the trend of weekly additional buy signals flattened last week, showing no significant change from the prior week. This is an indication that momentum has flattened or turned negative.

The other macro economic indicators in the BigFoot system remain unchanged at this time.

For the week, look for volatility to remain high with pressure to the downside. This may be part of the “w” that many have called for during this recovery. Pricing has arguably been pretty high based on valuations and future earnings projections for a lot of large-cap stocks. A pull-back from these would not be out of character. The larger question is how long does the pull-back last, and how deep does it go? If this trend plays out anything like it has for the past few months, it could be a fairly quick and violent move with a similarly paced resolution.

If futures are any indications, we will see a quick drop at the open on Monday. How the rest of the week follows through will the interesting. Technical indications suggest we’ll see downward pressure most of the week, or until the SPX hits at least 2950 or so.

IMPORTANT DISCLOSURE INFORMATION

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

Still Rallying… for Now

In spite of the various structural elements still unresolved in the economy this market continues to climb.

At this point, even the BigFoot Market Macro would flip positive if June ended today.

Both the S&P 500 and the NASDAQ have algo buy signals. The BigFoot database is 70% long right now. Only the DJIA is yet to flip to a buy signals… and momentum is close to triggering that positive as well.

In short, despite the job figures and supply chain stresses of the past several months, the stock markets are caught in a wave of momentum.

Call if FOMO. Call it TINA. Call it irrational. But it is what it is. The trade has been risk on. Money has been moving into beat up names like the airlines (wow) and beat us sectors like consumer discretionaries and risk-on factors like small-caps.

Whether or not it makes economic sense is not the question. This is what momentum and sentiment can do.

Will it last forever? Probably not.

Will it collapse at some point soon? Maybe.

But for now, here’s what is technically unfolding:

The SPX is set to challenge the 3275.87 this week. This was the ‘crest’ of the 50-day moving average in this pattern — the high-water mark of that indicator before the markets collapsed in March.

If we breach that, it’s highly likely we’ll re-test the all-time highs for the SPX.

There is very little down-side momentum right now. Futures are indicating another positive open for the markets. This should set the tone for this week. If there is a pull back (unlikely until later in the week) look for the first level of support around 3130.

The Fed appears to have purchased this market… or at least rented it for a bit. And you know what they say: don’t fight the Fed.

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.

Nothing to See Here… At Least Not Yet

The headlines may be all about riots, but the markets are probably less concerned about this than the major media outlets.

After months of non-stop Coronavirus coverage this is something new for the media to magnify and sell advertising around.

Don’t get me wrong – the events that have transpired are truly despicable and heartbreaking – so I don’t want to be misunderstood here. The tragedy is real, but the markets aren’t particularly concerned about them… at least not yet.

By and large, these social issues, while important, are not often major market movers. Relatively speaking, the damage is worse than a lot of storms cause. The loss is certainly unnecessary, but it’s not something that is going to have the entire economy panic over… at least not yet.

And why at least not yet? Because these issues are not yet economic issues. (Sure, you could argue that they are. But they’re not ‘new’ economic issues. We’ve been struggling to wrap our arms around these issues forever. Perhaps this will lead to meaningful change. And if so, then we can evaluate if there are financial impacts. But for now, nothing has changed… at least not yet.)

If we peer through the fog of media coverage what we find is the same underlying theme: markets are still ignoring a lot of fundamental economic data in favor of optimistic data around individual positions. ABC company says it’ll profit more than it previously expected? Great, let’s drive the PE to 1,000,000… it doesn’t make sense per se, but it’s how money has been flowing into the markets.

The danger in all of this is the future reality check. At some point, these numbers will have to make sense again. And paying for a company to grow at 97,000% annualized growth (I exaggerate for journalistic bravado and to make my point here) is probably a little rich. Honestly, how many companies can sustain this kind of growth? Realistically none… yet investors, presently, seem willing to pay outlandish premiums for future incomes in stocks that are not likely to ever materialize.

So, as has been the theme discussed in our forum calls, the fundamental data seems optional right now. If it confirms sentiment, stocks can really shoot up in value. If it doesn’t confirm sentiment, all sentiment needs right now is a really good story to rationalize why the stock deserves to grow.

Of course, this same logic works in reverse. If a company doesn’t have a great story, sentiment can destroy it.

If you’re thinking this is no different than any other time in the markets, you’d be right. But one caveat: in more typical markets, fundamental data DOES actually matter. In today’s Bizarro world, since fundamental data and guidance are scarce, investors seem to be more inclined to track a good story than actual numbers.

Also, as discussed, this behavior likely doesn’t last forever. Assuming the economy re-opens (which, it has to for many reasons) rose-tinted glasses should ultimately come off and fundamental data will actually matter. Companies may tell a great story about being profitable, but the proof will have to show up, or investors will be forced to take a hard look at whether or not they’re willing to pay such (historically) outrageous premiums for future earnings that may be more fictional than originally advertised.

So, for now, the markets continue to ignore a lot of fundamentals. How long? Probably a couple more weeks. As much of the country comes back online, here are the themes:

  • How fast can we re-open?
  • Can we stay open?
  • What industries survive?
  • What industries thrive?
  • What industries fail… and how quickly?

Once July rolls around – assuming the economy is basically re-opened (albeit somewhat modified and handicapped still) – then the markets will likely start to expect real earnings guidance again. This ‘we don’t know, we’ll tell you later’ stuff probably isn’t going to fly. But until then, don’t expect fundamentals to wag the dog too much. We’ve finished most of earnings season already for Q2. Now we get to hold our breath until Q3.

For this week it should be interesting. The 200-dma held for the SPX last week. And major indexes closed above the big fat round numbers of 3000 for the SPX and 25,000 for the DJIA. These are emotional lines in the sand. They are also good technical signals for the markets.

This week should be relatively sideways as markets assess whether these critical support levels can hold. For the SPX, the resistance is at 3050 / 3060… and… 3136 (yep, that much higher). Support is at 3028 / 3002 / 2886

Keep a level head out there. And try not to panic… at least not yet.

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.

To Infinity, and Beyond!

The economy no longer matters. As long as we have money from helicopters, the stock market can go higher… and higher… and higher… And if you’re one of the chosen ‘essential’ businesses, your stock can go to ALL TIME HIGHS!

The reality is, things don’t make a ton of sense right now. Economically, we’re fractured. Unemployment is setting records, yet the indexes climb. Companies withdraw guidance, yet the indexes climb. Governments talk about extending or re-instituting shut-downs, yet the indexes climb.

You get the theme here? The indexes want to climb. This is momentum playing out in front of us.

In truth, Indexes are a bit of a conundrum for the markets right now. The entire market is not so healthy, but indexes would lead you to believe this is not the case. Underneath the eclipse of just a few mega-stocks, a market actually exists; a market with winners AND losers.

The larger question is, will the indexes ever re-sync with the economy? In short, maybe not. Since the indexes – particularly the S&P 500 – have become so top-heavy, there may be a decrease in correlation to economic activity… at least for a season.

Here’s the issue though – if a handful of stocks drive the indexes up, that same handful can drive them back down. And, at some point, valuation will matter again. Perhaps it is not until we get some semblance of economic stability again – perhaps, for now, money flows into the mega-caps because it feels safe. But, when things begin to function again, will the stratospheric valuations be justifiable?

We’ll see. But for now, the them is simple: earnings don’t matter (yet), and the Fed is printing money. So don’t fight it…

For the week, the trend is actually sideways. Futures point to a sharply higher open this Thursday. However, it’s a shortened trading week, so volatility tends to be higher.

We’re over-bought by all the measures we typically use in this blog. This market is trading on hope and momentum. We’ll see how far it carries us.

For the week, here are the key numbers:

S&P 500 support levels: 2943 / 2907 / 2887

S&P 500 resistance levels: 2999 / / 3027 / 3060

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.