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Were Bears Just Invited to Dinner?

Let’s cut through the fluff and get right to the meat and potatoes of the market – did last week’s sell-off after the Trump Tweet announcing more China tariffs represent the end of the road for the bull market?

Too early to call. But judging from the futures markets, the balance has been upset. It looks like more than a 1.5% pull-back is on the horizon for the open today.

At this point, the markets — and the SPX specifically — would be best to stay above the June pull-back lows near 2725. That leaves some additional room to decline, as futures imply an open around 2875 or so today.

The challenge is in the economic data. With earnings still rolling along, but guidance still cautious, and the Fed lowering rates on eroding data — plus the rest of the world’s central banks already at lows — the ‘race to the bottom’ for rates could be accelerating. If that happens, it will get harder to stave off deflation.

Markets know this. After all, if 10-year money only yields 2%, how much up-side is expected in the long term? The problem is, the markets also know there’s been nowhere else to find yield, so the blue chips have been the ‘risk’ asset folks seem to have flocked to to extract yield. At some point, this riskier play may come back to haunt.

While it’s not yet time to worry, it’s time to be ‘on alert.’ The concern is that many investors have been watching for a signal that the bull is dead. The same investors that were forced into the market seeking yield may be the ones that get nervous and exit just as quickly. If so, we could see risk re-price quickly.

When do the bond substitute-ers run for the door? Who knows? But if risk is truly mispriced, when they do run for the door, the markets should notice.

The new issue that comes with the question is, how long before the bear trumpets become a self-fulfilling prophecy? At some point, every prior bull market has come to an end. Most believe this will be the case again. But how to recognize it?

The concern comes in how quickly sentiment seems to be shifting. Markets have been climbing a wall of worry for months – maybe even years now. Those little naysayer voices are getting louder though. At some point, what starts as a pull-back will become an actual bear event. Call me crazy, but I think the place to watch right now is those blue chips – the same mega-caps that have carried the index to all-time highs while masking the underlying weakness in small and mid-caps may be the very tell-tail that markets are turning.

Before you let your emotions get the best of you though, consider this: the trend is not broken, and every other pull-back this year has been similarly violent.

The issue is, there really isn’t any ‘new’ information that justifies panic. Trade is still an issue, rates are still super low, and TINA is still forcing yield-seekers into higher risk assets. The Fed has also maintained its commitment to as much transparency as it can muster, all but showing us the hand they’re holding as they make policy. So there’s not an issue of transparency. There’s simply a question of when will investor sentiment shift enough to move markets into bear territory?

If you have the answer, by all means, share. Otherwise, we’ll just have to stick with the data and the key numbers. This week, the SPX will likely open around 2875 or so. The week could get ugly though. If the market doesn’t find a bid, the 200-day moving average may be in sight in the next couple of weeks. That’s down around 2790.

The “Oh Crap” level is below 2744 or so. This would indicate a close below the June lows. It would also be a ‘lower low’ in the pricing pattern. While it’s unlikely the markets will fall that low this week, it’s a number to keep in the back of your mind. A breach of this level — or the intra-day lows of 2728.81 — would be a bearish signal. At that point, the SPX is likely to go into office correction territory. We’ll take a deeper dive in this blog should those events occur.

For now, look for a rougher week in the markets — or certainly a rough Monday. The BF database is still over 77% long, but we can expect that will shift over the week should volatility continue over the next few days.

This is a normal part of markets. Not every day goes up. And we’ve been spoiled with low volatility for a few years now. It’s often important to remind ourselves of this. Keep perspective – investing is long-term, and this is all part of a market. This is also where opportunities are born. So we’ll be keeping our eyes open.

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 Trade Wars Begin

While it sounds like an episode from Star Wars, this may not be fantasy. The trade talks between the US and China appear to be breaking down. At this point, both sides are talking new tariffs. And the speculation about just how quickly the world will come to an end has begun.

Putting political commentary aside, what does this mean for investors?

In a word: it’s bad.

Futures are getting hammered as markets appear poised to drop about 2% across the board. The 10-year treasury yield has also dropped as people seek safe-haven assets. Even the BigFoot database has dropped from over 82% long to around 75% long. So this is becoming more than just a squawking media cycle.

Support may be tough to find in this market. There’s been such a steady climb the last month that there are very few ‘stops’ on the way back down. The first noteworthy area the markets reversed is the intra-day low set back on March 27th at 2787.

Here are key support levels from there: 200-day moving average is at 2776. 100-day moving average is at 2749. And then there’s the March 8th low of 2722.

All of these levels imply a drop of over 3% for the week.

The only silver lining to this situation is that it could end. Should a deal be reached, markets would now view this as a VERY positive event that could push things to all-time highs in short order. Otherwise, the upward momentum is shot. We’re now looking at a sideways pattern where the markets have to find their footing, re-test a few times, and see if they can grind higher.

So yes, this news is damaging. Unless something happens today that gives the market a hard reversal — something that has this market finishing in the green today (which, frankly, is hard to rationalize given the current data) — there’s likely more damage to come.

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 Tariff Tantrum

Markets are bracing for a drop after the weekend announcement that tariffs on Chinese goods are not only back on the table but bigger than before.

What this translates to for the markets is uncertainty. For the past couple of months the China trade negotiations were largely an after-thought. This brings things back to the forefront.

Trying to understand (or predict) how China will respond is a study in both culture, gamesmanship, and so much more. And frankly, it’s beyond the scope of this blogger. Instead, let’s focus on what the market may look at.

Futures are set to open significantly lower. The SPX appears ready to test the 2900 support level. This is a fairly significant emotional line in the sand for traders. It’s also a big round number. But it’s well above the 50-day moving average of 2852.

A drop below the 50-day moving average this week would be psychologically damaging – especially when many folks begin to get suspicious about the “sell in May and go away” adage.

The 50-day moving average is about 3.7% lower than Friday’s close. A one-week drop of this magnitude would likely throw the markets into a sideways pattern while more news gets sorted out. It doesn’t mean it’s time to brace for a bear market. But we could be in for several weeks of increased volatility and sideways moves as trade negotiations move front-and-center for a while.

Despite the fact that the tariffs will hurt China significantly, there’s no guarantee they will respond as hoped. So this could drag on for a while. And it could have a real impact on GDP and growth for the S&P500 companies. A roll-back to the beginning of 2Q19 is easily possible. That would put the SPX back between 2786 and 2852. If China responds with tariffs of their own, it could push things down even further (although the economic impact of these tariffs would likely be less damaging to the US as we import more than we export from China).

It is way to early to suggest the US bull market is dead because of this. Quite the contrary, economic data remains robust. So while this is a bump in the road — and certainly it increased uncertainty — and likely volatility with it — it’s entirely possible the markets will pull back a bit, find their footing, and continue forward. Consider the fact there are still few more attractive options for yield than the US stock market (even with these new tariffs on Chinese goods).

If you think about all the options available to you — be they super-low-interest-rate fixed-income products, foreign equities, real estate. or commodities — there are still few options that look more attractive than US equities when comparing the overall risk-to-reward opportunities. This should keep a bid under the US market (or at least reduce the likelihood of a massive wave of selling).

Whatever the case, we should have more clarity as the week rolls on. For now, there’s a bunch of speculation and guessing as the markets try to sort this stuff out. As the data becomes clear, we’ll get a better understanding of where things are headed.

For the week, look at the 2900/2912 level for the first area of SPX support. After that, we may fall all the way to the 50-day moving average at 2852.

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.

Disconnect

Equity markets had a pretty solid pull-back last week.  The question is why?  Is there a fundamental shift in the economic data?  Profit taking?

It may have been a derivative of the ‘Trade War’ with China.  China has threatened to sell off $3B or so of US Treasuries.  Assuming this is credible, the front running of this decision could explain the move in the 10-year treasury.

While stocks and bonds are supposedly not highly correlated, that relationship is not always true.  Last week’s price action seemed the opposite certainly.  The question is, will this persist?

The technical action in the SPX is a bit early to call.  The next line in the sand to watch is the 2877 level — the 50-day moving average.  Beyond that and we get into more material pull-back areas closer to 2800.  The 2900-level provided little resistance last week as the SPX fell below this support area.

So, for now at least, we wait and watch.  It’s a tale of 2 levels.  Will the SPX retreat to the next major support level at 2800?  Or will it find footing near the 50-dma and begin the climb back toward 2900 and beyond?  Historically speaking, October, despite some key outliers, it usually a positive month for the markets (as is Q4 in general).  While the bias for the next day or two may be negative, we’ll see if this is just a trader’s blip, or something more significant.

IMPORTANT DISCLOSURE INFORMATION

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

Trade Wars are Easy to Win (We Hope)

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

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

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

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

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

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

IMPORTANT DISCLOSURE INFORMATION

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

 

 

Is this Pull-Back Nearly Complete?

Futures indicate a lower open on Monday for the SPX.  It’s been tough for large-caps lately given the loud shouts of ‘Trade Wars’ from media outlets.  It’s still quite unknown as to what may really happen there.  Some winners and losers will definitely get tossed around, but will the overall markets be harmed?  It’s too early to tell.

While pull-backs are not fun, this thing has played it by the numbers.  If the futures are any indication, the SPX will declined back to the mid-point of it’s 1-month (or so) trading range.  Once there, we’ll see if things stabilize and begin climbing higher.  The underlying fundamental story supports further upside from here.

For the week, look for 2740 as a key support/pivot point.  If the SPX holds up here, a reversal move back toward the 2800 level is likely.  If support fails, look for 2718/2700.

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.