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Begin Operation Wrap-Up

With the remaining trading days of the year dwindling into single digits this week, expect this week to be a push for the end of the year. It’s basically the last full week of trading we’ll have. After this, volumes typically start to drop… not to say the markets won’t move higher or lower on low volume (they absolutely DO in many cases), but it is to suggest much of the news for the year — including gains distributions — will be dialed. Markets will be shifting their gaze to 2021.

As markets look ahead, you can basically roll back about a week, read the prior BigFoot Blog, and get a sense of what’s going on. Little has changed. Last week some momentum bled off, but the larger up-trend remained intact.

For this week, the question is whether we’re looking at a sideways range or a break-out toward new highs. The futures movement indicates a move to the higher side of things, with the S&P 500 still eyeballing the 3800 level. The technicals are a little more benign, caught between a sideways trend and an up-trend.

Given last week’s meh performance, the SPX may be shooting for closer to 3757 for the week (a move higher, but at the lower end of the current trend). Rarely has this market followed trend this precisely. And there are still two shortened trading weeks to follow where any little bit of good news surrounding stimulus out of DC could cause the markets to pop.

Keep in mind, it’s the short weeks that exaggerate market behaviors sometimes. The theme of 2020 seems to be a big more negative (no shock there), so there’s about a 50/50 shot (total technical swag guess on the percentages here) that the markets publish their highs for the year this week, and we move sideways from there.

Interestingly enough, the data last week barely moved. The BigFoot Database percent-long, along with much of the other technical indicators, was nearly unchanged. About the only thing worth noting is we’re less over-bought.

Given the lack of change, taking a step back and looking at the larger theme implies the market is still seeking a higher move. Since the negative of last week was not a powerful decline, we may see more of a pop higher this week… If futures are an indication, Monday should open strong. We’ll see if Washington provides any additional excitement to push things higher.

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 projections for the week of 12-8-2020

Santa Still on Approach

With the S&P 500 still shooting for a 3800+ print in 2020, the Santa Claus Rally looks like it’s still on.

It may sound crazy, but volatility could continue to decline in the near term as markets slowly grind higher into record territory. There simply isn’t a significant amount of news between now and the end of the year that looks like it will derail this thing. And mean reversion is likely not reason enough on its own to lead to much more than some intra-week down trading days during a broader trend higher.

(Did that make sense? Basically, the market seems to want to go higher, but on any given day some trading could lead to a negative print here or there. It just doesn’t look like much more than that: trading. The secular up-trend still looks strong.)

This is not to say black swans don’t exist. And this is not to suggest the markets could not find a reason to get fickle and decline. (They could and certainly have before.) It’s simply looking at the data, the trends, and trying to gauge the amount of uncertainty the markets are trying to contend with.

The trick is, most of the contingencies looks like up-side surprises. With much of the country still quite locked down, the questions are more about whether or not additional stimulus is going to happen. Taxes and other policy changes are still taking a back seat for the rest of 2020. (But don’t you worry, we’ll get a chance to freak out about that stuff in Q1 of next year.)

So, at least for now, it appears most of the current negative news in the world is already priced in. That leaves more positive surprises than negative in the short term, hence the high probability the markets grind higher from here.

The number to watch on the S&P 500 continues to be 3800. The downside support area looks like 3644. If this level fails to hold, the 3600 level could be tested.

A close below 3600 for the week would likely end the rally for 2020 and set up a test of the 50-day moving average and a sideways trading range for the rest of the year. The odds of this occurring look relatively low at this time.

A look under the hood of the BigFoot Database shows the DJIA just got a new buy signal. This means the S&P 500, DJIA, and NASDAQ all have buy signals in the system. The database itself is almost 85% long, with almost 85% of those long positions having buy signals (the others are wait signals). In short, volatility is on the decline, and stocks have been on the rise. Unless something surprising happens, Santa Clause should still be coming to town!

The technical setup looks like the Santa Claus Rally should continue.

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.

Early Signs Indicate a Santa Claus Rally

For all the pain 2020 has caused, it looks like there may be one more gift this year: a Santa Clause Rally?

Let’s skip the suspense of fundamental musings – after all, none of us can predict the future. instead, we’ll look at the quantatative data. What’s it suggesting may play out?

The technical pattern unfolding under this market is showing surprising strength. First, all but the DJIA indexes have regained their buy signals in the BigFoot system. This suggests volatility is on the decline (and perhaps uncertainty as well).

The individual signals on the indexes are a positive sign, but a look under the hood of the BigFoot system reveals even more news. Currently the system is monitoring over 11,700 positions, and over 83% of those positions have long signals. About 2/3 of the long positions have buy signals. And the number of buy signals has been increasing throughout November.

The increase in buy signals in the BigFoot system reflects declining short-term volatility in the system. This makes sense in the larger context of the markets. November may outpace August for monthly gains.

Looking ahead, it seems unlikely the markets can maintain the pace of November for the end of the year. However, the technical pattern suggests the month of December can be positive and move higher from here.

There is a lot of underlying strength in a number of trend lines. The 50, 100, and 200 day moving averages are all positive. Linear regression trackers are all positive. The slope of the quarter, month, and weekly trading trends are all positive. In short, there are very few trend-tracking data points a computer algo can use to get bearish right now.

Some analysts may suggest the market is over-bought here. While the data does imply this, (we’re over one standard deviation above the last month’s trading range now) there are other influences that need to be considered. First, the upward move has a lot of technical trend strength. This pattern indicates we could extend higher for several weeks, remaining in the over-bought area for longer than expected.

Second, the sequence or returns – with August being strong, September and October being weak, the November being strong again – have enough wide swings to again throw off many trading algo’s. The patterns just don’t quite conform in the short-term.

It’s the intermediate term that looks promising. It’s long enough to show a positive pattern, but short enough not to look much past Q4-2020. It even makes a little sense.

Between now and the end of the year the fundamental story is promising. With the Georgia Senate race undecided, the most extreme Biden tax plans are on hold (assuming the Senate doesn’t flip blue). So markets look to the end of the year, with a stimulus-friendly administration walking into the White House, and a likely Covid vaccine rolling out soon. Both of these should bolster market sentiment for a few more weeks given no additional data. And neither should change the Fed’s policy approach.

Then there’s the untold story. It’s the end of the year. Many Wall Street analysts pegged 3800 as the number for S&P 500 2020. And bonuses are on the line. (So the cynic in me is watching for a rally to make sure those traders and analysts hit their holiday bonus numbers).

Of course, it is 2020. So literally anything could happen. Earthquake? Volcano? Ice age? At this point, only the boldest of us would rule anything out. But, statistically, the outcome looks positive. So, at least for now – for December – some hope remains that we can finish strong.

S&P 500 going to 3800 is still not out of the cards for the year. For the week, it looks like a slow start, with futures suggesting a negative open. This wouldn’t be surprising after last week’s Thanksgiving-shorted trading session. Once traders re-position a bit for the home stretch of the year, we’ll see if markets don’t find some traction.

So be good boys and girls. We’ll see if the market brings a present for the end of the month, or if 2020 delivers another lump of coal.

The Holidays Are Here (???)

Don’t look now but the 2020 market season is in the final innings. It’s Thanksgiving week and the unofficial start to the Holiday Season.

Will a Santa Claus Rally be in the cards to end 2020?

Well, the crystal ball is pretty dinged up this year, but the signals look positive.

Behind the scenes the BigFoot database has subtly regained a bunch of long positions. It now stands at over 79% long. All the major indexes are long, with only the DJIA showing a wait signal (which will probably flip to buy if the week ends on a positive note).

Signs point to a bet the economy is going to continue to reopen. It’s a risky bet. But the vaccine hopes seem to be outweighing the lock-down fears… for now.

Fear is probably the right acronym for 2020: Future Events Appear Real.

At the start of the pandemic, the concern was that death rates would skyrocket into the millions. Projections suggested as much as 4-to-5% of the population could die (these were the extreme projections of course). The numbers have been sensationalized ever since.

While Covid cases continue to rise, the improvement in medical capacity, therapeutics, and testing have shifted expectations mightily. The markets seem to be doing a good job of looking past some of the hype and digesting the numbers more pragmatically. (Markets themselves are dispassionate; market participants, on the other hand, can be quite opposite.)

Pragmatically, Covid case numbers were expected to rise as testing increased. Also, Covid figures were expected to play a roll in the election cycle. So some of the data was viewed as more sensational than other.

What the markets seem to care most about is whether or not the economy will stay open, whether or not the Fed is going to change course, and
whether or not there will be more stimulus… probably in that order.

So far, the only parts of the economy that are shutting down are the parts that never really re-opened that much… the west coast (where governments are instituting restrictions on gathering for the Holidays). The next few weeks will be telling to see how many people defy these orders.

The key metric seems to be less about Covid cases than hospitalizations. This was, of course, the original concern. It wasn’t going to be “if” you got covid, it was going to be ‘when.’ And policy was designed to “flatten the curve” to keep hospitals from being overwhelmed by covid caseloads.

As holidays undoubtedly lead to increased gatherings, keep an eye on hospital caseloads. That is the gauge most likely to indicate additional shut-downs.

For now, markets seem relatively convinced the caseloads will remain manageable and additional stimulus is on the way. And the markets seem to be looking higher as a result.

For this week, look for a positive trading trend. It’s a shortened week, with markets closed on Thursday for Thanksgiving, and then a half day on Friday. So volume will be lower. And typically market direction gets exaggerated somewhat on lower volume days.

It seems unlikely we’ll post new all-time highs after last week’s marks. But it does appear likely the markets will find a foothold this week and climb back into the upper end of last-week’s trading range. The SPX target for the week appears to be 3640.

It’s the following four weeks that could get exciting. If markets believe in the re-open trade, there could be more rebalancing from big tech into other areas of the markets. This could life indexes like the Russel 2000 in the remaining month. And the S&P 500 could yet surprise… the 3800 target is not off the table by year end.

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.

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.