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Pushing the Pause Button

Last week the S&P 500 managed a mixed bag – down for the week, with positive trading days both Thursday and Friday. What does it mean?

Technically, it looks like the up-trend has been interrupted by a sideways trend.

A couple weeks ago, when markets were aggressively recovering from the September slump, we discussed a possible push to new highs… OR… and this is the gotcha, we could see a side-step if you will — a sideways market with little significant commitment either way.

The up-trend was primarily driven by the hope for more stimulus. As those hopes have faded, a bit more of a wait-and-see attitude has emerged. This makes sense given the election is now just over a week away. (Markets aren’t known for their patience, but in this case, the policy differences between the two candidates are night and day, so absent a really good reason to ignore it, we may as well pay attention).

The underlying disposition of the BigFoot database contintues to improve. However, that rate of change has also slowed dramatically. So at this point, the momentum has stalled.

Given this stall, there’s little that would appear to drive the markets materially higher or lower for the week. That sets up a sideways range that likely stays between 3517 on the high side, and 3375(ish, this number is a little more vague) on the low side.

The bigger concern this week is some form of noteworthy bad news. Given the minimal downside support right now it’s possible the 50-day moving average would fail and the index could take a more aggressive rip down to the 100-day moving average at 3300. That’s close to a 5-percent decline. It’s a lot — but not for a year like 2020. Fortunately the odds of that happening still look pretty low. But… did we mention 2020?

More than likely this week will drift sideways and we’ll see a spike up in volatility. With the election being too close to call — and polling data becoming the next back-up plan if we run out of toilet paper — the markets are looking less at who is predicting what outcome and more at outside systemic threats. Of course, the thing about looking for black swans (systemic threats) is, by definition you don’t know they exist until after you find them. So it’s not particularly clear how one watches out for them.

On this we seem to have learned the hard way: every time you challenge 2020 by suggesting it can’t get worse… Never mind. Let’s not jinx it.

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.

Looking Past the Election

A look under the hood will show the BigFoot Database beginning to re-purchase into declining volatility and a possible break-out to the upside for the S&P 500.

Recall one of the big drivers of the BigFoot Algos is the presence of short-term volatility. When short-term volatility declines, it’s often a sign that markets are aligning for a positive advance.

Sure, the database is still pretty beat up, with approximately 46% of tracked symbols having buy signals. Still, this is up from the prior week’s 42% levels, showing signs the market is beginning to re-group at these levels in preparation for another move higher. It is the change in direction that raises the eyebrow…

How — or why — would this happen? Likely the markets are already looking past the election.

The headlines will suggest the market is banking on another round of stimulus from Washington. There’s also anticipation (or at least reporting) of a ‘blue wave’ ushering in both regime change in the white house and the Senate. If so, a round of government spending and higher corporate taxes is likely.

But it’s more complex than that. The markets aren’t tracking the headlines per se. In fact, headlines seem more inclined to sell an outcome than report the news these days. But the markets, ever single-mindedly seeking profits, are seeing the bigger picture for what it is: stimulus regardless of who is in the white house. So this is less a political prediction than a reality check. The Fed has suggested stimulus is required to keep the ship from capsizing. Now Washington is just jockeying for political points. If the market is correct, stimulus is a forgone conclusion. Now we’re arguing over when and how much.

So markets are less concerned in the short-term about Trump or Biden. They want to know when the money starts falling from the sky.

This doesn’t mean the markets don’t care who wins the election. It just means the markets aren’t looking out that far right now. “Free” money is a pretty powerful incentive to shorten time horizons. Longer-term the pace of growth for the markets will absolutely be impacted by one regime over another… but that requires too much thinking right now. We want to know where the next round of lighter fluid is coming from.

The technical picture suggests a break-out to all-time highs is possible this week. Futures are already indicating a higher open. And last week’s move in the SPX — while negative for the week — did little more damage than to allow some consolidation after the previous week’s break-out.

This isn’t to suggest a break-out to the upside is guaranteed this week. It’s simply to suggest that is what the pattern is indicating .

When looking at the numbers, the S&P 500 is now on the hunt to take out previous highs and extend toward the 3704 level. It seems unlikely to hit these levels this week – but perhaps in the next two weeks.

On the downside, look for 3440 or so for support. A breakdown below the lows of last week would signal a sideways move and would take the 3704 number off the table probably until after the election results are settled.

S&P 500 projections for the week of October 19, 2020

The wild thing about this market is it seems to have largely priced in the effects of Covid. It has more or less recoved its losses and moved back into the price channel established in 2019. We’ll see how the election plays out as to whether or not that longer-term pricing trajectory remains valid…

Updated 2020 Projections.
Note the S&P 500 has moved back into the original price trend channel.

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.

Reading Between the Lines

Reading the headlines you’d assume the markets were gearing for a collapse. After all, just about ever superstitious thing you can think of is lining up. It’s a month before elections, there are protests (and riots) all over the place, hurricanes – POTUS even got Covid.

A look under the hood at the BigFoot Database is similarly concerning. The total percent long for the database is now under 42%. That’s slightly more than a 50% reduction off peak numbers that crested 84% long.

The NASDAQ and the S&P 500 both have sell signals. The DJIA just tripped a wait signals.

All three major indexes dipped into correction territory in September.

And, of course, there are all the structural problems in education and the economic supply chain resulting from Covid shut-downs.

So things have gotta be bad, right?

Well, yeah… but that doesn’t mean the stock market has to go down.

This week there is a key technical area for the S&P 500 to watch: 3427. .. or if you want to split hairs, 3426.96. This was the closing price for the index on September 4th, just two days after the markets had set new all-time highs then aggressively sold off.

If the SPX manages to close above this key level any time this week, it would likely signal a re-test of the all-time highs for the index.

It may seem counter-intuitive, but keep in mind the stock market is a forward looking mechanism that is trying to handicap the future. In that respect, it is already looking as far ahead as it can – including past the election. So what we’re really looking for is a signal that expectations are going to change.

The technical data, so far, does not indicate those changes. In fact, the price movement seems to be consolidating around the current levels. Futures have indicated a positive open for Monday, and it appears the momentum is shifting back toward the up-side.

Even the BigFoot Database, while negative, is in a fairly extreme condition. Remember, part of what triggers a sell signal in the system is a negative volatility spike. If volatility drops, those signals will stabilize and potentially flip back to the buy side.

So keep an eye on 3427 on the S&P 500. That is the critical resistance area for the week. Support should show up at 3323. And, if trends hold, volatility could actually decline (again, counter-intuitive in this media cycle, but a possibility nonetheless).

In the FWIW, the President having Covid is probably less of an event than the media has let on too. We will discuss more about this in our upcoming forum call this Thursday. Catch you there… (and if you’re not on the list and would like to join the call, ping us at customerservice@bigfootinvestments.com and we’ll get you a link).

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.

Correction Territory

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

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

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

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

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

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

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

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

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

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

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

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

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

Here are the critical numbers for the week:

Support: 3265 / 3218 / 3204

Resistance: 3343 / 3393

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

IMPORTANT DISCLOSURE INFORMATION

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

Assessing

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

Call it a hunch.

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

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

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

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

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

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

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

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

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

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

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

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

Hang in there… could be a wild ride…

IMPORTANT DISCLOSURE INFORMATION

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

S&P 500 New Highs

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Only history will vindicate the answer to this question.

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

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

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

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

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

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

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

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

IMPORTANT DISCLOSURE INFORMATION

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

Listen to the Market

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

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

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

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

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

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

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

So what do we know?

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

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

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

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

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

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

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

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

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

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

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

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

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

So why discuss this at all?

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

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

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

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

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

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

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

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

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

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

IMPORTANT DISCLOSURE INFORMATION

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

 

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.