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Does Downside Risk Outweigh Upside Potential?

After the S&P 500 managed a weekly close above 3000 the wind seems to be coming out of the sails. Last week finished down, with the lows of the week coming Friday at the close. With more and more companies issuing cautious forward guidance, it seems there may be more downside risk than up-side opportunity for near-term investors.

Last week’s pricing move, while not unexpected, makes sense technically. Markets hit an all-time high, so traders, in the face of cautious corporate outlooks, start taking money off the table and locking in some mid-year profits.

3000 was noted as a significant line in the sand. Going into earnings season, investors have questioned whether or not forward guidance would be optimistic.

The issues seem fairly straight-forward at this point – low fixed income rates force people into the stock market, but declining economic conditions and cautious guidance make valuations look more questionable. Fed action continues to wag the dog at this point, and trade policy just adds to the uncertainty. The cocktail really hasn’t changed much for the past several months.

This issue is, at some point, the idea of a market correction can become a self-fulfilling prophecy. The question is, at what point will bears outnumber bulls? Or perhaps a better question: at what point will sellers outnumber buyers? Because that can move prices.

Unless we get some kind of specific black-swan event, it is unlikely there will be a specific point that markets pivot on. Instead, there will be a point at which a negative movement captures momentum and just keeps running beyond what people expect.

Looking at the technical pricing levels, this week may be another negative. After testing 3000, a pull-back would not be un-typical. The question is where might support be found? For the week, 2950 looks pretty strong. But this trend could easily pull-back to 2900 without being considered anything more than a run-of-the-mill pull-back.

That kind of move would put the S&P 500 at its 50-day moving average. A move lower than that would be a more significant shift and could be a sign of further deterioration to come. How aggressive the pull-back occurs could also be important. A few days of sell-off is pretty typical. But a more extended down-draft — especially if based on a specific event — would be concerning.

Perhaps the most important player in all of this will be the Fed. Markets have become near-dependent on the FOMC providing low rates to force a bid under this market. If, for some reason, other factors outweigh these low rates, the stock markets look less attractive to investors. At that point, we will have more to discuss in this blog. Until such time, the story stays the same: TINA until we hear otherwise.

S&P 500 projected range for the week of July 22, 2019

IMPORTANT DISCLOSURE INFORMATION

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

Markets Poised to Grind Higher in Spite of Mixed Trade Talks

It’s too early to take stock of the damage caused by Florence (though some of the smaller towns in the Carolina’s are likely to have extreme flood damage).  So far the markets, as dispassionate as they are, are taking the whole thing in stride.

Consumer confidence remains high, and the economy seems to continue chugging.  The question on most minds is whether or not trade deals are going to go sour.  Thus far we’ve gone past simple rhetoric, with the Trump looking to place additional tariffs on $200 billion of Chinese goods.  The question is whether or not China will come to the table or take their ball and go home.  (Judging from their stock market performance, they’ll probably come to the table).

So far, from a technical behavior perspective, markets have taken this news in stride.  In fact, the S&P500 appears to be consolidating around the 2900 level.

The basic setup for the week is a fairly narrow range, with the SPX likely hovering around the 2890 mark for the low, with a high of 2925 or so.  This appears to be a sideways pattern, with a slight bias to the up-side.  If the market holds consistent with recent behavior, a little bad news is going to be taken in stride.  Good news will push things higher.  And only if it’s really really bad stuff would the SPX move below the 2870 level.

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.

Trade Wars are Easy to Win (We Hope)

Last week Trump threatened to triple down on China with even more tariffs if they didn’t come to the table for a trade discussion.

Meanwhile, the politics of the day have the country so split along partisan lines, there may be very little political advantage to Trump to deviate from this position.  So the game of economic chicken continues, and we may get to test the theory about how whether or not trade wars are easy to win.

Naturally, this has the market spooked a little bit.  But so far this isn’t enough to trigger a pull-back.  It’s just enough to arrest the climb higher.  So basically, it looks like a set-up to repeat similar price movements from last week.  The SPX 2872 level is still the key support area.  A failure here drops support down to the 2850 level.  As far as resistance goes, the first area will be around 2900 (or a few points higher).

So basically, September is shaping up as a consolidation month so far.  No one seems ready to call this thing over because the underlying economic data — and relative pricing of stocks (not to themselves, but compared with assets like bonds) still seem okay.  But the prospects (or at least media rhetoric) about trade wars and economic boogie men keeps things from moving substantially higher too.

For the week, the SPX appears neither over-bought nor over-sold.  So we’ll need to keep an eye on things to see if how the market resolves.  The big-picture trend remains positive, but there are no guarantees of anything heading into an election cycle.

<sorry, charts are down this morning.  Will try to get this updated soon>

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.

 

 

Get Back to Work

Vacation season is officially in the rear-view mirror.  Almost every school in the country is done with summer and back to the grind.  And the next break in the action won’t really occur until the Thanksgiving Holiday.  Look for volume to start climbing.

Let’s skip the fluff and get right to the chase:  the technicals are still showing bull signals at this time.  The media cycle is all aflutter about trade deals and the woes of the presidency.  Meanwhile, earnings are up, and interest rates are still tame.  This seems to be the only thing market participants care about right now.  Speculating on what out-there news story will take down Trump just hasn’t been profitable.

So what do the technicals tell us?  So far, the 2900 level is the next battle.  While markets closed at new highs, there may be some consolidation between 2870 and 2910 or so while participants settle into this new range.  Otherwise, the markets could shoot up toward the 2940 levels this week.

Over the weekend futures got as high as 2912.50 before pulling back to start this week.  The early indication is that the pull-back is likely to lead to an opening level similar to last Friday’s close.  It looks like the underlying momentum could turn positive though, pushing things higher.  If this market gets a little push, it could climb very quickly.

For the week, look for a positive bias.  It appears one of two likely options are in the set-up:  1) the market does some back-and-forth between 2870 and 2910,  or 2) the market finds its footing early and climbs passed 2925 while hunting for 2940 or so.  If option 2 happens, 2910 should become a new line of support for the week.

IMPORTANT DISCLOSURE INFORMATION

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