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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.

2018 Lows in Sight

Looks like the stock markets made Santa’s naughty list. Last week seemed like things were stabilizing until the Friday afternoon selloff threw that idea out the window. At this point, sentiment is shot. It’s the end of the year. And the Fed has backed itself into a corner – damned if it does, damned if it doesn’t. Because, despite decent earnings and decent economic data, the perception is the economy is rolling over.

So it looks like the lows of 2018 may be revisited soon. Friday’s price action already pulled the major indexes back into correction territory. There’s just very little traction to be had. And unless Jay Powell pulls a rabbit out of his hat, there seems to be little for the market to get excited about this year.

Short of a formally inked trade deal with China, it appears the high for the year was put in back in October. And it appears the low for the year may yet to be seen.

For the week, look for continued volatility as the market searches for a low around 2532 intra-day. If the SPX breach of this level and you have to start looking into 2017-year for support levels… we’ll cross that bridge if (or perhaps when) we get to it. Judging from the futures markets, Monday will open lower. If the Fed-speak is wrong though, a 60-ish point decline for the week is more than possible.

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.

Technical Outlook Still Unclear

While the long-term trend support seems to be in place (around the 200-day moving average), the intermediate-term numbers are all over the place.

This week is an interesting set-up.  The futures over the weekend are indicating a strong positive open for the week.  And over 1000 companies report earnings this week.  This, paired with very little Fed activity, should make for a decent backdrop for the markets.

Looking at the technical data, it’s a tale of two markets.  One market has the SPX running back to over 2825 this week.  The other has the SPX failing down to about 2675.  The volatility range looks like it could be quite high this week.  The bias, fortunately, appears to be positive.

The last several weeks have taken a lot of the wind out of the sales of this market.  While it doesn’t appear a full-blown bear is yet upon us, the BigFoot database has now fallen from the mid-70’s in terms of percent long, to low 50’s.  This is a meaningful shift.

On the one hand, money has been in motion, so some new opportunities should arise.  On the other hand, money has been in motion, and there’s clearly a shakeup.  Tech, in particular, has taken a hard hit in October.

Given that all three macro indicators remain positive, the backdrop for a major decline still hasn’t materialized yet.  Once the elections are over perhaps the markets can get a better idea which direction they’d like to commit.  For now, look for continued volatility, with a positive bias 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.

Breakout (Almost) Confirmed

Last week the SPX closed out the week at the highs for the year.  Good sign.  It’s tempting to call this a break-out situation.  And, in the simplest sense of the term, that’s true.  But we want to see some follow-through this week to see if upward momentum will continue and strengthen.  That’s the real test.

While the future is never be certain, this kind of break-out likely means the markets have higher to climb.

In the face of relatively manageable guidance from the FOMC, economic numbers remain solid, and the Fed is apparently going to remain measured and transparent enough to meet the market’s fickle expectations.  So the primary unknown now is trade.

China is the elephant in the room on this one.  It seems Europe, Mexico, and the like are all improving situations.  But China — that’s the interesting one.

As discussed on our forum calls, our belief is that the China trade concerns will resolve themselves in the near future.  But, of course, those are educated guesses.  We’ll see where things ultimately end up.

In the mean time, the all-time high close puts the 2900 mark on the radar for this week, with 3000 as the next line in the sand to pay attention to.  While unlikley, it’s possible the markets could test the 2900 level this week.

The other thing to note is where the markets close this week.  A close below the 2873 level isn’t necessarily a big problem.  But a weekly close below this level would mean the breakout is not yet confirmed.

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&P500 Eyes All-Time Highs

While it is difficult to forecast a breakout in stocks in advance, the S&P500 is less than one percent from closing above its all-time highs.  That can easily be taken out in a single day.  The question is which day?

Given the way data will be released this week — with the majority of market movers coming on Wednesday (with the release of FOMC minutes) or later, look for a trading range up until that point.  From Wednesday on, volatility may climb, but the probability of a close above the 2018 highs is climbing (despite mixed bag of global economic data).

The key thing to watch will be a weekly close above the January highs for the S&P500 — moreso than the DJIA or the NASDAQ (as they are either too concentrated in numbers or industries respectively).  A weekly close at all-time highs would be a strong signal the SPX is headed to the 3000 mark in the coming weeks.

There are a few simple things to keep in mind why this is happening:

  • Despite election discussions already starting, they’re a  ways off yet
  • The FED continues to operate with a lot of transparency
  • Corporate profits remain strong and growing overall
  • Interest rates remain low
  • Inflation remains relatively contained
  • Despite historically low unemployment rates, wage inflation has not gone bananas
  • Real estate has cooled slightly (which is probably okay as things were getting bubble-ish in many markets)
  • AND perhaps most important, TINA (There Istill No Alternative) that looks like a better place to get a return on your investment besides the stock market.

Any of these things starts to change and we can talk.  Until then, it looks like the market will keep doing what it’s doing.

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.

 

It’s Not About Trade Wars

The story of the day may be trade wars, but it’s not about trade wars.  It’s about interest rates.

The trade wars may be great media fodder for political theater, but the economic impact is anything but known.  First, one has to determine if there even is a trade war (and Trump has mastered an almost Greenspan-esque way of keeping the media guessing at his intentions).  Second, one has to determine if said trade war will have any material impact on economic activity.  Right now what we have is a whole lot of noise but not a whole lot of data.

It’s the story behind the story that matters.  Will economic growth continue, and how will the Fed shift monetary policy?  The expectation is for a rate hike this Wednesday.  If history repeats itself, we’ll see some market volatility intra-day, but we’ll still find a way to grind higher.

It appears the 2780 level is a first order of resistance for the SPX while waiting on the Fed.  Based on the most recent market trend, it’s likely this resistance falls.  The markets seem to have found some recent traction as they continue to retrace toward their January highs.

For the week, look for 2780/2800 as resistance areas.  Support should be around 2750.  And the language out of the Fed will likely be the key for this week.  Until the data says otherwise, keep doing what you’re doing…

As an aside, many are watching the summit in Korea wondering how this may affect the markets.  While this may matter in terms of politics (particularly if Trump ends up successfully brokering a reunification and denuclearization), from a market perspective, this is likely to be a gift.  If Trump is successful, the markets probably rally on the news (as it’s good for the global market bringing a new player to the table).  If the deal fails, it just means we keep doing what we’re already doing.  It’s difficult to imagine a scenario where this leads directly to missiles getting lobbed back and forth — that’s the down-side scenario — but it seems pretty unlikely at this point.

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.

Hurry Up and Wait

So we wait… until the Fed goes ahead and raises interest rates again.

The news cycle will be pushing trade war talks or currency shifts or commodity pricing.  But the story is still the Fed.  Do we have enough news — globally — to keep the Fed from hiking rates again?  Probably not…  the low unemployment number is getting hard to ignore.

Don’t take your eye off the ball though.  The story is about the cost of capital.  The narrative may begin to shift as investors ask when the bull market ends, but there’s probably some delay in that process.  For now, M&A activity and consolidation is should keep happening until rates rise to the point it looks less attractive.  The rest of the noise in this market is mostly relevant because folks are trying to figure out how Fed policy will evolve and what it will mean.  But the Fed is still the elephant in the room.

For the week, look for a sideways market with the SPX hanging out between about 1700 and 1750 or so.  Futures look to be opening positive, but the move still appears measured.  For traders out there, looks like more volatility to enjoy.  For investors, looks like more hurry up and wait…

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.

 

How Does Italian Uncertainty Affect US Equities?

The 10-year treasury yield is dropping again — in spite of the Fed’s rate hike campaign.  Presumably this is because many European bond traders are seeking safety in the US while Italy shakes out some issues.  Italian bonds tanked and yields spiked as talk is shifting to the possibility of a post-election exit from the EU.

We’ll skip the (most of) the politics and finger pointing because that’s not what this blog is about.  We want to talk technical shop.  What does all this mean for the equity markets?

In the very short-term, it means a pull-back in equities.  But after a few days of digesting things, a recovery may be in the cards.  When you strip away all of the other noise, here are some key things to keep in mind:

  • US economic data remains pretty solid
  • Earnings season was great
  • Borrowing rates remain low
  • Credit spreads, while widening slightly, are still pretty narrow

Given the macro picture — and the unknown issues in Italy (which is not a huge contributor to the EU economic output) — it seems like this data isn’t enough to derail the bulls just yet.

When looking at the technical picture, the number to watch Tuesday today is 2700 on the SPX.  For the week, keep an eye on the 50-day moving average at 2673 as well.

Resistance is likely to be around 2750 or so.  A close above this level on Friday would be a positive sign for this market.

The reality is that unless Italy is a sign of more significant global contagion, this is likely to remain contained.  It’s not a significant impact on global GDP.  So life probably goes on.

Given the shortened trading week and end of the month, it’s both possible and likely we’ll see higher volatility this week.  S&P futures dipped down to 2690.25 overnight.  It’s possible there will be a move down at the open to test this level.  If so, it is important the equity markets find a support at the 50-day moving average.  Ideally, a reversal with a close above 2700 would confirm support at these levels.  That would indicate the markets have consolidated around the 2700 price and traders are looking for justification 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.

Is the Bull Market Back On?

Last week may have been the break-out traders have been looking for as major indexes finished positive for the week.

After several months of correction it looks like the 200-day moving average for the SPX is likely to hold support.  It has been tested several times.  Each time a wave of buyers showed up.  This is classic correction/recovery territory for a bull market.

The recent push higher has driven the markets into a slightly over-bought situation, but this may not lead to a significant pull-back from here.  If the SPX were to pull back though, it support is likely to materialize at the 2700 level, or just below at the 50-day moving average.

The ‘set up’ right now appears to be one for the markets to move higher from here.  Last week’s move validated support and pushed through the psychological resistance level of 2700.  If this week finishes higher it’s likely the markets will continue grinding higher to re-test the January highs for the year.

Ironically, while the markets are showing ‘good news’ with things recovering, it appears to be the ‘bad news’ cycle that keeps things moving higher.  Too good and markets worry the Fed will change monetary policy.  Too bad and things are actually pretty bad.  But not good?  That seems to be the Goldilocks spot:  not good enough for the Fed to change, but not bad enough for money to move out of the markets.

Goofy times we live in.

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.

Mixed Signals Everywhere

With so many ‘this is good, but this is bad’ data points out there, it’s difficult to make heads or tails of this market.  Bull or bear?  Maybe the answer is neither… for now.

The interesting thing that’s been going on, really since Janet Yellen stepped down as FOMC chair, is that volatility — in general — spiked.

Intra-day volatility has remained pretty high.  But week-to-week, it seems like the swings are starting to normalize somewhat.  Could it be as simple as the markets getting used to Jerome Powell at the FOMC now — and realizing there has not been a significant policy shift nor a radical departure in communication style from the Fed?  And if so, is there really that much of a reason to expect the bears to drag this thing down much further?

If the market is primarily concerned with the cost of capital, it seems the corporate earnings picture is proving that the incremental rate hikes are yet to have a significant impact on things.  And the tax cuts are still just being realized in the system.  So…  geopolitics… which haven’t been a significant influencer of the markets (or even volatility for that matter) for the past several years, are all the sudden the big concern for the markets?  Don’t seem to jive with how the markets have behaved the last few years.

Seems more like the markets have to decide whether or not the ‘peak earnings’ theory throw out there by CAT is the real question.  And so far, the answer appears to be no.  So apparently it’s not what have you done for me lately, but what are you going to do for me next, that the market is looking for.

On last week’s conference call we discussed the pennant pattern the S&P500 has been forming through most of 2018.  This week the number to watch is 2688.  A close above this level for the week could be the start of a break-out that has this market re-test the 2018 highs published in January (fun stuff).  A close below the 200-day moving average (currently 2611, but call support 2600) would be a break-out to the other side, and signal a move lower.

We’ll see if this week signals a ‘sell in May and go away’ event, or if the old wive’s tales or the markets are nothing but baloney.  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.