Posts

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.

To Re-Open or Not

Here’s something I don’t get to write very often: even though the markets look over-bought here, they looked poised to take out their all-time-highs this week.

Sure enough, major indexes are over-bought – statistically, I mean. But statistics schmatistics. This is 2020, where anything goes.

A quick look at the chart below will show that prices are way at the top of the ‘cloud’ (a technical measure of the last 21 trading days and the standard deviation of the period’s trading range). In typical circumstances this would suggest prices are temporarily too high and due for a pull-back. But did we mention 2020?

At times a shift in news or sentiment will create a shift in the market. It is a dislocation, but it also marks a potential trend-shift in market prices. When this occurs, it’s not uncommon to see ‘typical’ market measurements temporarily thrown out the window. And that’s what appears to be the set-up.

Last week’s announcement of a Covid vaccine was greeted by a lot of optimism in the markets. Meanwhile, on the other hand, the number of reported Covid cases is at an all-time high. The beauty of the markets is, it’s willing to strip away much of the politics from the data. And the rise in cases doesn’t seem to matter that much to the success of the economy (as long as cases don’t outstrip hospital capacity).

What does seem to matter is whether or not economies are allowed to remain open. If Covid cases lead to enough hospitalizations, new lock-downs could occur (such as the new lockdowns announced in Oregon beginning Wednesday, shutting down dine-in restaurants and restricting stores to partial capacity).

New shutdowns would likely be greeted by market pull-backs. But so far, the shutdowns appear to be mainly a West Coast deep-blue phenomenon. We shall see if the concept gains traction or not. The announcement of yet another vaccine today (this time from Moderna) shows promise and suggests a silver lining may yet be found for this pandemic.

For the week, look for the markets to open higher on Monday and likely set all-time highs for both the S&P 500 and the DJIA. The SPX is now ‘hunting’ for the 3800 level, perhaps before year’s end. For this week, the target appears to be 3675. It will take a drop below last week’s low of 3511 to break this trend.

A couple of other details worth noting:

The SPX, being more tech-heavy these days, may underperform the DJIA for the remainder of the year. Likewise, the NASDAQ may underperform the other indexes over the same time period. There has been significant price improvement in the Russell 2000 indicating money is beginning to shift in the economy. The ‘stay at home’ trade has been a very powerful trend for 2020. However, Big Tech in many respects is over-bought. It would not at all be surprising to see money begin to shift out of big tech toward other areas of the economy if vaccines shift the trade from stay-at-home to back to the ‘old normal.’ If this shift happens, it would create a headwind for both the S&P 500 and the NASDAQ given their overweighting to tech.

As always, do your own homework. This is just a blog, not a recommendation. But if you’ve been reading this for a while, you know how that works.

Now please forward to a friend or share this somewhere. Apparently it helps search engines find us. So we’d sure appreciate if you could help us spread the word. Cheers!

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.

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.