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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.

Risk Onff

Futures are soaring after the weekend. Presumably it’s over optimism for some type of vaccine to Covid-19. It illustrates the broader problem with trying to call this market: it’s emotional as hell and we have little more than hope to inform our analysis.

The indexes themselves present a challenge. As the economy continues to stratify the winners and losers, the winners are eclipsing everything else in the major indexes. The top 10 stocks of the S&P 500 are now more than 25% of the index’s weighting. That can mask a lot of underlying damage.

It’s the underlying damage that’s being ignored by this market. Stocks continue to climb on the optimism of an infinity background from the Fed. This infinity backstop has flattened yields and anesthetized risk takers. In effect, we’ve fueled massive oligopolies that are squeezing out everyone else.

The Covid response has pushed national unemployment to records in record time. What’s unclear is how many of these workers will find their way back to work. At this point, parts of economy have been functionally killed off… as in… not coming back. Many small businesses are — or will shortly — go under. Many governors have made outlandish statements like “our economy will not fully re-open until there is a vaccine.”

This is serious stuff.

The economic impact of cutting much of the service sector by 50% is definitely not priced into the stock market. The problem is, as many are now pointing out, the stock market is not the economy. This is perhaps more true than ever when we look at the mega-super-giant-cap companies and how much cap-weighting-real-estate they occupy in our economy. What’s become obvious is the wealth divide in the United States is not just among individuals – it is among companies as well.

If small businesses fail to rebound, expect unemployment to remain high. This puts both the Fed and Washington in a difficult position. Keep rates low forever and print money to provide universal basic income? It can be done, but it means huge portions of the economy must be reinvented. Which, again, can be done… but how, then, does the stock market not get impacted?

The answer seems to be the same thing we felt back in the Greek economic crisis… kick the can down the road. Just do it, stabilize things now, and trust that someone else will solve the future problems – today has problems of its own.

So perhaps this is the new normal. Central banks everywhere will continue to print money. The money supply will increase, some will creep into the hands of consumers, but most will find its ways into the hands of the winner-take-all oligopolies.

Regulation will likely do little to stem this trend. All it will do is make it harder for competitors to grab market share. It will place the lobbied politicians in the difficult position of needing to break apart their largest campaign donors. (So you know it’s unlikely we’ll see any bucking this trend in the near future.)

So what is one to do?

We have the unenviable task of trying to predict the future while navigating the present. For now, stock markets, in defiance of technical trends or typical data, are showing signs of placing a bottom in place and building towards a pricing recovery. It’s almost as if this is the elected theme, so it must happen, regardless of data.

We’ve thrown unimaginable money at this economy. Money that didn’t even exist three months ago. That money fill find its way into the economy in unorthodox ways. But what is clear so far is it hasn’t found its way into the hands of many consumer. Stimulus checks? Sure… but that pales in comparison to the bond buying and SBA corporate bailout money.

When the dust finally settles, the economy will not look the same. Travel, dining, education, and entertainment are all going through a painful forced evolution. And all of those are significant parts of what drives the overall economy. There will be an impact. The question is, will we be able to see it in the stock market behind the eclipse of oligopolies?

So enough of the editorial. I include it because so many ask me what is different this time? Why does fundamental analysis seem to be ignored right now? And the answer is, it is ignored until it is not… the economy can mask a lot of damage, and hope can lead us to ignore many details. It will not last forever, but it persists for now. So how are we to invest?

Clearly, large-cap domestic blue chips have been the winners. And tech and health care have been the darlings. It remains to be seen if we are seeing bubbles build here. In some respects, tech has been fueled by a 1999-like frenzy that forced many to purchase new computers to move into the digital world of distanced employment. But does that refresh cycle come with the same 2-year dip in tech purchasing afterwards?

We know the SPX is no longer representative of the economy. It may still prove a useful proxy for the stock markets at large though. So, for now, we’ll continue to look to it for guidance.

This week the futures are already signaling a possible break-out from trend. The SPX has been in a sideways pattern for several weeks. The optimism around a vaccine may drive us through the 2945 resistance area. The next area if resistance is 2980 at the 100-day moving average.

If we continue the daily whip-saws we look for a pull-back towards 2850/2794 (which may as well be 2800). Emotion-driven markets aren’t all that sophisitcated in terms of support and resistance sometimes… so big round obvious numbers get a lot of attention. Look for the 100 and 200-day moving averages to be up-side resistance for this market, with 3000 being a significant optimism level. It will likely start as resistance, bouncing a time or two at this level before pushing through and rallying perhaps to new all-time highs… and here’s the crazy part… it may happen all this year… so yeah, in the next 6 months… (If I had to make odds, I’d go about 50/50 on this one… by no means a guarantee, but definitely a real possibility if optimism starts to swell… we put a lot of money into this economy… it’s bound to go somewhere seeking a return… and it doesn’t look like it’ll be the bond markets)

For the week, Tuesday and Thursday are the ‘danger’ days. We’ll hear from Jerome Powell on Tuesday, and we’ll get another jobs report on Thursday. Powell’s testimony is unlikely to move the needle. The only reason it’s a ‘danger’ day is if he paints a much darker picture than the market expects. So far, he’s already hinted that things are rough, and likely to stay rough. So markets aren’t expecting much.

Look for a trader’s market today. Already, futures are indicating a big push higher on Monday. There isn’t much ‘new’ news… well, there’s new optimism on a vaccine. But that’s not really new… that’s just the current story. We’ll see if this move holds, or if it’s another opportunity for traders to make a few quick bucks while the markets keep oscillating in a sideways pattern.

So risk Onff… the economy looks bad, but markets look good. The BigFoot macros are all negative, but the algo database has climbed to 55% long. Joblessness continues to increase, but we’re re-opening the economy… sort of… So yeah… everything makes sense… except for the stuff that doesn’t.

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.

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.

 

Is it Finally Bad Enough?

Q1-2018 is officially in the books — and what a frustration.  January came in like a bull, but February and March went out like bears.  In the end, there was a lot more volatility, but investors haven’t moved the needle much in terms of account values.

The theme has been a mixed bag of good and bad…  the economic data looks so good that the Fed has to tighten monetary policy.  Taxes are going down, but tariffs are going up.  It’s like each piece of good data has a corresponding bad piece.  You know what they call that?  A market!

While the talking heads sort out the news stories of the day, the underlying technical data has its own story to tell.  Last week the 200-day moving average appears to have held support — in the final week of the quarter — in a shortened trading week.  The S&P500 also touched it’s 10% pull-back mark again.

Early indications are that the consolidation trend may be finding a base at these levels.  If so, we could be looking at another leg higher in equities.  Consider that markets appear technically oversold, and that corporate earnings continue to climb, and the underlying data doesn’t appear things are going to collapse.  Corporate balance sheets — and mega-bank balance sheets, for that matter — look nothing like they did in 2008.

This may sound optimistic.  And, admittedly, it’s too early to call this one.  But it seems wise to bias toward the strong underlying economic data over the shorter-term headlines risks of this market.  Plus, a look at the Sigma/BigFoot database shows we’re at a very low-point in terms of the percent-long for overall positions, but the macro-indicators are all positive.  This is yet another sign we may be reaching a point where the volatility and turnover in the equity market is going to start swinging the other direction.

This Thursday’s conference call should be a fun one!

So far this year…

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.

50-dma Fail

If the futures markets are any indicator, then it looks like the 50-day moving average for the SPX is going to fail on Monday morning.  While this is not in and of itself a catastrophic sign, it’s disappointing as the recovery wave of this trend may be failing.  Intra-day the SPX managed to publish both a higher high and higher low for last week.  Still, the Monday open appears to be pretty sloppy.  It looks like about a 0.5% drop out of the gate.  And, if history is any indicator of how things will go, we could see follow-through on the trend that moves the trend even lower.

With the open dropping below the 50-day moving average (at 2748), the nest line in the sand will be 2700 — or the 100-day moving average at 2685.

Even if the markets test the 2685-support range this week, it does not mean the bull market is officially ‘dead’ or anything drastic.  The speed and aggressiveness of how the market seeks this level could come into play though.  A very aggressive drop this week could spook investors.  If so, we may be looking at a re-test of the market lows, and a more material correction period.

More likely, the markets will continue to be volatile, and we’ll trade in a sideways pattern with a point range between 1700 and 1850 for a while until some kind of shift in economic data gives investors a reason to commit more seriously to a direction.  Until then, it’s the an obnoxious Goldilocks market — neither too hot nor too cold to break out of a sideways trend.

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.

March Madness

Here’s the summary of what seems to matter:

Trade wars are bad, but so far we’re not in a trade war.

We have a a mixed bag of technical signals, but the underlying fundamentals appear pretty solid.

Yields are rising, but apparently they’re still not enough to draw yield seekers away from the stock market.

The BigFoot database of long positions has declined to the lowest point it’s been in over two years, but it appears to be stabilizing at these levels.  The DJIA, S&P500, and NASDAQ Indexes all have sell signals, but the the Macro Indicators remain long.

Last week the 100-day moving average provided support for the S&P500, and the 50-day moving average was blown through after Friday’s strong jobs number.  So the 50-day now gets to potentially change rolls, providing support for the index.  That puts the number to watch at 2742 for Monday — though it may rise through the week toward 2750.

On the upside, we’re looking at 2800 as the first line in the sand, with 2825 next on the chart.  From there, we’ll start talking about taking out the highs for the year…  but one step at a time.

The futures are indicating a positive start to the week.  Given the talk of trade wars, tariffs will likely be the key news narrative.  The set-up is for a move over 2800.  If a pull-back comes, look at the 50-day moving average as the first line of defense.  The 100-day is second.  A move below that and we should examine the news cycle — things would have to be pretty ugly at that point as we’re talking about a short-term technical fail at that point.  Otherwise, 2800 is the number to watch — and we could break through that early Monday morning and spend the rest of the week inching higher from there.

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.

 

 

 

The Old Normal?

It appears some of the volatility of the last few weeks may be dissipating from the markets finally.  Last week’s move in the S&P500 finished every-so-slightly higher, ending the week-over-week slide for the index.  It appears the price movement may stay between 2700 and 2800 for the week (and yes, 100 points sounds like a big range, until you realize the S&P500 had been having intra-day swings of over 100 points just three weeks ago.

Perhaps the biggest thing to watch for the week is Jerome Powell.  While there is a fair amount of fundamental economic data that would typically move the markets this week, the markets are looking for assurance that the new Fed Chair is not going to deviate largely from his predecessor Yellen’s generally dovish policies.  A slow, steady, data-dependent and measured approach to increasing interest rates is what the market is looking for.  Anything to the contrary and we could see volatility spike yet again.

With the futures are indicating a push for the the S&P500 back into the mid 2750’s again, it’s likely the trading range for the week will pivot around this amount.  While it’s possible the markets could break out to the high side, the set-up appears more measured at this point.  It looks like more range-bound trading as the markets — with 2700 being the primary support level, and 2800 being the primary resistance level — until the markets are comfortable Fed policy isn’t going to radically shift.

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.

Watch the FOMC

Markets have been on a v-shaped recovery ever since the sell-off started a few weeks ago.  Since bottoming on February 9th there’s been an aggressive recovery.  But there’s also been an interesting shift in sentiment.  Has good news become bad news again?  (Meaning the markets think good economic data could force the Fed into raising interest rates?)

Wednesday will be the release of FOMC notes at 2pm Eastern.  That will be where we get a better sense of what’s going on.  Provided the message remains consistent — that the Fed isn’t going to pull the rug out from under anyone, and they’ll continue providing transparent forward guidance — everything should move forward business-as-usual.

For the week, 2800/2825 are the upside resistance areas, but a technical retest of 1700 appears likely, with a more extreme re-test of 2650 or so (the 200-day moving average).  A pull-back to these levels would not be viewed as a trend failure or recovery failure unless there is a shift in macro-economic data.

The BigFoot database has stabilized and macro’s remain long.  Expect some mid-day volatility on Wednesday as the market sorts out a direction.  This shortened week may end up being a decision point for whether or not this market can regroup and move higher.  Based on how the technical patterns have emerged so far, it appears the short-term damage is mostly done, and the longer-term bull market is resuming.

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 Carnage Over?

Last week equity markets officially hit correction territory before bouncing off the lows of the week to finish up on Friday.

So, is the carnage over?  Are markets done selling off?

From a technical analysis story, the jury is still out.

What was significant in the pricing action is the 200-day moving average for most of the major indexes.  This seemed to be the line in the sand where buyers stepped in and turned things around.  From there, the markets moved sharply higher.  Over the weekend the futures markets are indicating a continuation of this trend.  So — good sign.

Before we call the ‘all clear’ signal, we need to look at some of the bigger-picture issues though.

First off, the bigger picture has been a series of lower highs and lower lows.  So this trend has been one with big volatility and stair-steps down.  Even while futures are pointing to a gap higher at the open — and a push toward as high as 2650 perhaps — the level on the futures to watch is 2686.  That was the last peak in the futures that would need to be passed in order to break the pattern of lower highs.  We see that, maybe we can start getting excited that buyers are stepping back into this market.

Overall, market conditions appear to be oversold.  Still, caution is the word of the day.  There was significant sentiment damage last week.  And a case can be made that the markets are going through a re-evaluation period to determine the next regime of analysis.  With the Fed ‘normalizing’ rates, the ‘Fed Put’ may be over.  What will be the next key element to watch that drives things higher or lower?

On top of that, we had easily the largest single-weekend shift in the BigFoot database in over two years.  The database slipped from 68% long all the way down to 48.66% long.  That means roughly 20% of the database got sell signals — or nearly one third of every long position in the system.  A move of that significance shouldn’t be ignored.

Granted, the BigFoot algorithms are built around volatility as a key component of the decision factor.  And the volatility spike has been huge.  It’s possible to get a false signal if volatility were to somehow wash back out of the system as quickly as it appeared a couple weeks ago.  It’s difficult to find a scenario where such conditions would manifest in real life though.

So caution is the deal.

The Macro indicators are still long in the system.  They’ve slipped some – but nothing like the algo database.  The Macro’s still paint a picture of an overall healthy market and economy at this time.

So what we have is a mixed bag.  The markets are over-sold, and the volatility algo’s have lit up like Christmas.  But the Macro’s are still long, and haven’t shifted much.  So…  caution…  wait and see.

Since the major indexes all found support at the 200-day moving average last week, this is the key area to watch for support right now.  Alas, indexes also fell below their 50-day and 100-day moving averages.  So these will be resistance – with the 50-day being the number to watch, as the S&P500 is sitting close to the 100-day already.

Hang onto your hats gang.  We may be in for another volatile week.  We’ll see if the S&P500 can re-take the 1700 level.  It looks promising – and if it happens – good technical sign.  We’re re-evaluate from there.

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