Posts

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.

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.

Here Comes Earnings Season

The stage is set for an exciting earnings season. Guidance is one thing, but this is where the rubber to meet the road. Can earnings actually grow from here? Or have we seen peak earnings growth for this economic cycle?

It may not matter… yet. The Fed has all but assured markets a rate cut is coming. So there’s little incentive to run for the fixed income markets. There really aren’t a lot of options for investors to find yield — or any returns for that matter — outside of select real estate markets or equities markets. So a multiple-expansion rally is not out of the question at this point.

The funny thing is, while the fundamental story driving this market higher has not changed, the technical picture has become a mixed bag for the S&P 500. The rather orderly expansion continues to behave calmly as the day-over-day pricing break new highs. In fact, five of the last six trading weeks have finished positive.

But there’s more to the story than just printing higher highs. The SPX is above it’s 50, 100, and 200-day moving averages. And it’s now more than 1.5 standard deviations above its 21-day trading average. By those figures, this market is over-bought.

So which is it? Orderly or over-bought? Perhaps both. The thing is, despite being over-bought, there does not seem to be significant pressure for a price correction. Now that 3000 has been breached, the index will need to test this level to see if it will maintain support. Otherwise, a pull-back toward the 2940/50 level would be fairly typical based on the pricing pattern unfolding.

The upside, while possibly breaking out, appears to be around the 3035 level for the week. If this level is breached, a run for 3050 is certainly possible. But given the over-bought nature of the market, it would take some pretty good earnings news to push things that quickly while we’re already at all-time highs.

Should a downdraft materialize, look for the 3000 level to be the first test. A breach of this level is not exactly a problem. It could just mean a test of the 50-day moving average, or somewhere down near 2900 is even possible. This does not negate the current up-trend. It would be a fairly orderly and typical round of profit taking to see this kind of price move. Should the 100-day moving average be pierced then it may be worth taking a closer look at pricing.

For the week, look for the bias to be positive, with some volatility increasing as earnings season gets under way. As long as expectations are met and guidance is reasonable, the 3100 level is still within sight in the next few weeks. If sentiment turns, we will re-evaluate at that time.

Meanwhile, the BigFoot database continues to be around 78% long. This should remain stable as long as volatility remains low.

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.

New Year’s Shift

Happy New Year!

This is the first full week of trading for the year – so back to work!

Markets are trying to shake off the December 2018 hangover. Last week’s first trading week sure made it interesting. The big news was the blowout jobs report last Friday coupled with the more Dovish tones from the Fed. This cocktail was the recipe for a huge rally on Friday.

Has this changed anything? Only the short-term outlook. It seems everyone had written off the economy for dead in December. With the Fed tightening, it was only a matter of time before the recession word came into play. But then the jobs numbers came out.

Realistically, the problems are unchanged from last year. The difference is outlook on the Fed. If the money supply isn’t going to be choked off even more aggressively (because, remember, they’re still reducing their balance sheet and no longer buying bonds), perhaps the economy can continue to grow.

Plus the American public is about to get a very real look at whether or not they will experience personal tax savings under this new plan. It’s been a popular target because of growing deficits at the Federal level, but folks are about to get a direct taste of ‘what’s in it for me.’

Some good news on China talks, the Federal government starts operating again (this is less of a concern to the market than the media would have you believe), and some decent earnings numbers and guidance in Q1 and this market could be back on track in short order.

The Fed shifts to more hawkish, trade talks with China drag on with no change, or we start to see numbers indicating an actual economic slowdown, and this market could head south all over again.

So for now, we wait a couple weeks and see how the data shapes up.

If you want to be a stickler, the SPX actually hit a 20% drop from peak-to-trough during December. So one could argue we’ve had the shortest bear market we’ve ever seen. Strangely, no one seems to be saying that. The talking heads keep talking about when the bull will die… so apparently an intra-day swing, or a one-day blip, isn’t how they want to measure things.

For the week, it look for 2408 support, and really no upside resistance to speak of, so 2575/2600. If this seems like a comically large range for a technical call… it is. But that’s what happens when you’ve had the kind of volatility that wrapped up last year. Things get blown-out, over-sold, and the algo’s get a little wild. Until volatility subsides (if), this may be typical for a while.

Cheers and fingers crossed for a great 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 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.

What if Earnings Aren’t Enough?

The theme that’s starting to permeate this market is “what if earnings aren’t enough?”  So far the SP500 has, on average, exceeded Wall Street earnings estimates by around seven percent.  Yet stocks, after beating estimates, haven’t popped.  In fact, it seems the downside penalty this season has been about three times harsher than the upside reward a company receives for an earnings beat.  So what gives?

One theory is that investors are starting to look further down the road as far as earnings go.  Will earnings keep climbing, or was last quarter the end of the good news?

Another theory is that markets are still highly valued on a multiple basis even with the higher earnings.

Both may be true.  The technical signals are a mixed bag right now.  While support for the SPX has held up around the 200-day moving average, so far the index has failed to reach escape velocity and break out above the 50/100 dma’s.  In fact, the 50dma is currently below the 100dma.

These mixed signals, unfortunately, give little indication the market is going to break out to the high side — even with the strong earnings season.  It seems the focus has shifted to ‘everything else’ as investors remain uncomfortable with wear we are deep in the bull market cycle.

Interestingly, the base case from the beginning of the year — with a minimum price target of 2890 — is still on the table.  Some analysts have started to downgrade their expectations for the year though.  2890 is pretty low compared to many estimates out there (to be fair, our ‘minimum’ price target isn’t what’s expected.  We have a more likely target of 2940 on the chart as well – and several projections that were over 3000).

Since last week was a complete wash (SPX opened at 2670.10 and closed at 2670.14), the key for this week will be to see if we trade outside of last week’s trading range.  This puts the low at 2660 and the high at 2717.  A daily close above or below either of these levels would be an indication of directional bias (though a break-out to the high side would be more significant — a drip below 2660 just means we could test the 200dma again).

The markets are still in search of a catalyst.  Until something changes, look for the sideways trend to 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.

Some Algos Are Finding New Buys Out There

While the needle hasn’t exactly moved much, the bleeding seems to have stopped for now as the BF database crept ever-so-slightly higher toward the long side over the weekend.  The move itself is not all that statistically significant.  The fact that the declines stopped may be however.

For now, the trading range has not been broken.  But futures point to a higher open signaling the potential for things to break above the 50-day moving averages.  From a technical perspective, this would indicate the market could be picking up momentum and looking to break-out to the high side from here.

Before you get too excited though, you might want to pump the brakes.  Geopolitical tensions remain high right now – especially with the recent shelling of Syria by the US.  This may further strain relations with Moscow.  It’s not necessarily a direct economic concern given the over-supply of oil right now.  But it’s a wild card as to what they may do and how that impact could ripple through to other players.  It’s the uncertainty factor the markets hate.

As Earnings Season gets into full swing the markets will likely be paying close attention to both earnings AND guidance this round.  Strong guidance will be important.  Also, keep your ears open for any indications of slowing global economic growth.  The story has been a global coordinated recovery for a while now.  Any signs that the recovery is getting shaky could lead to more uncertainty for this market.

Bottom line, while the story for a higher market is still in place, the wrong sequence of events could spook things and lead us lower.  As of now, the trading range between 2600-to-2700 remains for the S&P500.  The 200-day support and 50-day resistance levels continue to move closer to each other.  As they do, it’s likely the 50-day resistance will fade.  A breach of the 200-day support may still be viewed as problematic though.  More to follow on that one IF we breach that level (currently at 2599 — so we may as well call it 2600 for our purposes).

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.