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Home Stretch

This is the last full trading week of 2019. It may also be the last big push of the year for the markets to move higher.

If futures markets are any indication, there should be a pop Monday morning. This may create additional momentum for the week, pushing the SPX up over 3200.

Given the unusual holiday schedule (with both Christmas and New Year’s on Wednesday), this may very well be the high-water mark for the year. Still, as far as the calendar YTD performance goes, it’s been a heck of a year already.

There really is no ‘resistance’ on the upside right now. With markets essentially at all-time highs, the question is just how high can things go?

And things may go higher than we thought. With trade war talk softening, some of the pricing expectations may be off. IF — and it’s still if at this point — the trade war is going to soften, earnings expectations could benefit. That could mean this bull has room to run. 2020 may be an interesting year…

As far as support goes, around 3130 for the SPX. If this level is breached there may be some additional downside. Odds are portfolio managers are trying to sew up their bonuses for the year, so it doesn’t seem terribly likely we’ll have the bottom fall out of the market.

So while there is never a ‘known’ future for the markets, the set-up looks pretty good. It would take a major shift in market expectations to really throw a wrench in this thing. Folks seem to be asking how much higher this market goes rather when will the next drop happen. So grab some eggnog and cross your fingers – Santa Claus is coming to town 🙂

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 Winds Improving

Last week markets got a pop on ‘less bad’ trade news as China indicated a partial trade agreement may be on the table. This could mean additional planned tariffs would be suspended.

Markets viewed this as a positive and finished last week with a strong push higher.

While the news is good, the technical set-up for this week may have a quick down-draft to fill in a price gap for the SPX. There is technical support around 2930 or so — right at the 100-day moving average (the 50-dma is only 5 points higher).

Interestingly enough, the market is neither over-bought nor over-sold. It’s pretty much right in the middle of its 21-day trading range. So positive news from here could lead to a push higher (especially if the small price gap created last Friday gets filled quickly this week).

This is the first technical sign that the markets could be setting up for a break-out to the up side in a while. There is still a chance the sideways pattern could simply persist, but the price reversal last week was a good sign the 2900 is significant support for the SPX.

For this week, look for a quick dip down, followed by a potential surge to the up-side. Breaching 3000 on the SPX is possible this week, although it is unlikely the all-time highs will be reached. It would take a more definitive deal with China to spark that kind of move.

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.

Oil Grabs the Headlines

Markets are set to open lower with oil spiking higher. This is after Saudi Arabia had two oil facilities attacked by drones over the weekend.

The US blames Iran. Iran claims innocence. Name calling ensues, and things quickly escalated to saber rattling. So, long story short, oil prices are spiking higher as some of Saudi Arabia’s production went offline. And, of course, markets are roiled because uncertainty is up.

Oil is an interesting deal. It is highly integrated into the entire global economy. So a shift is oil is a fairly systemic event. The real question is, does this little tiff lead to something more significant? Or does it simply blow over after a few days and life goes on?

Judging from the futures markets, stocks don’t seem terribly concerned… at least not yet.

Futures are down about a third to a half of a percent or so. But that’s not really that particularly out of the ordinary with stock markets already nearing their all-time highs again.

The set up, at least for now, appears to be a sideways move. This is encouraging as market participants are taking time to digest this news rather than knee-jerk and panic over it.

The key to watch for is contagion. If this issue becomes larger, energy prices in general could become an issue. Interestingly, this is not necessarily a negative for the US. In fact, if oil prices climb, it make be stimulative for job creation in the US. That could drive the dollar even higher as the US has shifted to a net oil exporter. Higher prices could spool up the Dakotas and shale production (something the present administration is friendly towards).

During the shuffle, keep an eye on some simple moving averages. Overall technical signals have been pretty consistent recently. Money continues to seek the safer corners of the equity markets. Fixed income has corrected recently, so it’s less also in less rarefied air now. That makes the 50-day and 100-day moving averages of the SPX useful barometers for the time being. They’re at roughly 2950 and 2915 respectively.

Bottom line, the US has a lot of oil. The instability in the middle east is a cause for concern, but it shouldn’t be a cause for panic. The bigger issue is how this gets handled. Stay tuned… and, as always, if something material changes, this blog will get updated as well.

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.

Keep Your Eyes On The Fed

The SPX may be in a sideways pattern, but the short-term momentum has shifted to the positive. Now all the analysts come out of the woodwork to try and explain why. Here’s the simple thing to do:

Watch the Fed.

If the news cycle isn’t going to change what they’re doing, odds are, the market shakes it off in short order and resumes its current trend.

This trend is not on fire. It is not likely to spike higher in the near future. No, it’s likely to keep grinding higher and higher — likely to and through all-time-highs — as the year moves on toward 2020.

Why? Because the macro story is unchanged. And we’ve beaten the drum enough — still in expansion, growth slowing, international growth slower than US growth, international rates negative, US rates ultra-low. All of this still forces money into the more conservative pockets of the US stock market – which creates a bid that keeps things from breaking down too quickly.

It’s still a TINA story — there is no alternative — and until we have a reason to change, we’ll press on.

Look for the SPX to challenge — and likely close above — the 3000 level for the week. Support is at the 100-day moving average around 2915. Any trading above this range is simply… ‘normal.’

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.

Estimated range of SPX for week of 9/3/19

Uncertainly

A perfect storm of uncertainty seems to be brewing for this week. But that uncertainty does not seem to be the kind that will significantly derail this market — at least not this week. It just adds to the drama.

The set-up for the SPX has about a 100-point range for the week. That’s pretty big – but the test is near the top of the range.

The range is built around the small head-and-shoulders pattern that has been forming over the past several weeks. The left shoulder peaked at 2954. So the movement of the SPX will be interesting here as we approach the potential right shoulder. Do we break up or down from here? (hint: the trend appears to be up)

With Hurricane Dorian slated to hit the East Coast this week, this test could be tricky. While the storm does not change the geopolitical and economic mix much, it will be a meaningful distraction to productivity in an already-shortened ‘back-to-routine’ week (does that even make sense?).

Typically activity picks up in September as kids across the country are back to school. There is no significant holiday between now and Thanksgiving in November. And the shortened work-week post-Labor-Day-holiday often suffers what many shortened weeks do – heightened volatility as the market crams a lost day into 4 (and yes, this is mostly anecdotal, but it certainly ‘seems’ this way).

With Dorian in the mix, the question is also whether or not there will be a measurable impact to the economy in the form of a slowdown in productivity or massive damage that requires repairs.

Bottom line, the international picture has not presented any significant revelation the market is trying to digest. So the news cycle will likely follow Dorian’s impact for this week, with some side discussion about Brexit and interest rates. Throw in some ‘I hate the other team’ political banter, and the week isn’t really that out of the ordinary.

The technical picture, strangely enough, appears to have volatility narrowing compared with prior weeks. The question is more about whether or not the markets find support at these levels and grind higher, or if we stay in a sideways pattern with volatility for a while.

If the story remains unchanged, the support area for the SPX is about 2854, with consolidation happening in the 2900-2950ish range. Resistance isn’t really a factor here – it’s simply all-time-highs. And if those are taken out, that’s a good sign. The concern comes if the market closes below 2825. A breach of this level could mean more significant downside to follow.

For this week, just hang on. There may be a few whip-saws, but the data indicating a more significant decline hasn’t shown itself yet. We’ll see how many headlines traders try to play off of though.

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.

Escape Velocity

Equity markets enjoyed a strong 1-week recovery but seem to have more-or-less stalled out after last week. The question is, can momentum break out above these levels, or will a more ominous ‘triple top’ signal a re-test of the 2600 level (or lower) for the S&P500?

The BigFoot Economic Macro Indicator continues to slowly erode. There is still plenty of margin before any type of sell signal would be issued. However, it’s notable the trend has been weakening. Pair this with the uncertainty of trade and tariff, and it’s easier to understand how 2900 or so remains resistance for the SPX recently.

Last week’s intra-day high was 2910.61. That was Tuesday. It may be a point markets do not see this week.

Conditions remain fairly uncertain. It does not appear to be a recipe for collapse, but neither does it appear to be a recipe for things to move higher from here.

For the week, look for SPX support around 2840, with resistance at 2895.

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.

Reprieve… for now

It seems the markets are pleased with the aversion of a trade war with Mexico. Last week the SPX saw a near-4-percent recovery following the red on Monday. From Tuesday on, it was all green. And, judging from the futures markets, that trend is set to continue into the start of the week.

Does this mean we’re out of the woods and ready to print new all-time highs in the major indexes? Definitely not.

The key number for the SPX this week is 2892. A close above this level would be a sign markets may re-test the highs of the year. A failure here could be equally concerning though, as some technicians will quickly point out it could represent a triple top for the index. This, typically, is viewed as a negative signal for the markets.

The end of the week is the bigger tell. An intra-week close above 2892 is by no means an assurance this market is out of the Woods. In fact, a move above this level, followed by a pull-back and close below the 50-day moving average for the week could be viewed as a re-test and failure after the last pull-back.

Here’s the story by the pictures:

The SPX range is highly unpredictable this week. Will the recovery continue or stall out at near 2892 levels?
Key numbers for the week (with key resistance at 2892)
S&P500 sector proxies
Market Capitalization Proxies
Updated 2019 Projection Chart

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 Warning Signs Continue to Grow

With the May pull-back in the markets, the technical landscape for the market has really deteriorated. Momentum is clearly to the downside, and stocks across most sectors and market caps have been falling. There have been very few safe ports in the storm so far.

One of the dangers of aggressive bear markets is the increase in correlation across investment categories. When massive systemic risk shows up (and markets are declining on a broad basis), diversification is a less effective risk management tool. This is a large part of the reason behind the BigFoot Marco Indicators – to give some tools to manage systemic risk.

So far, the BigFoot Macros have been hanging in there (translation: they’re still long). Note though, these indicators are lagging in nature. The technical landscape can still offer some perspective on the markets.

A quick look at both the market cap and sector proxies for the markets shows a lot of negative momentum (note the background color of the charts below – the red background indicates a negative pricing trend for the rolling 3-month trading period).

Market Capitalization Proxies
S&P500 Sector Proxies

The chart below shows key areas of potential support and resistance over the next few weeks. The downside momentum is significant, with the 2679/2661/2609 areas looking like support areas worth keeping an eye on.

For the week, trying to predict where this thing is headed is a challenge. The negative momentum is significant. However, the markets have been triggered by trade war concerns. So any meaningful positive developments on these fronts could drive a sharp reversal.

The ‘black swan’ probability is pretty high right now.

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.

Tough to Handicap

The technical landscape is very ambiguous this week. Not only is it a short week, but we’re already at ‘over sold’ levels by many measures.

Typically you’d look for a market bounce in over-sold conditions. If so, the 2874 level (50-day-moving-average) would be the place to look. However, given the ongoing trade issues with China, the markets could be going through a more material overhaul of future profit expectations. If this is the case, there could be more pain before markets find traction.

The 2800 level is likely the key for the week. So far, this support level has managed to hold up. As long as the market can close above this level it’s a good sign. However, a close below this level — and, more significantly, a close at the end of the week/month below this level — would likely be greeted by additional downside.

The fact this is a holiday-shortened week falling at the end of the month may make for some interesting movement on volume.

The challenge looking forward is figuring out what could drive growth from here. With the trade war potentially handicapping future profits for a large portion of the markets, the stage is set for a sideways grind. The stage does not seem set for a 50% decline (at least not yet), but it does not seem set for a big push higher from these levels either.

Perhaps we will look back and wish we had ‘sold in May and went away.’ Then again, the total market decline has only been about 4% or so for the month. The bigger concern is the bleed in ‘long’ positions in the BigFoot database. We’ve gone from over 80% long signals to now below 60% long signals. This may simply be a reflection of the spike in volatility. Then again, it could be a sign of something more.

Frankly, this trade war with China is on the verge of becoming a very real issue. This kind of event can lead to structural changes in our economy. Those changes are yet unknown. But we can likely expect the technical aspects of the market will shoot first and ask questions later. Stay tuned…

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.

Uncertainty is the New Certainty

Markets found some footing last week after a multi-week slide. However, futures are pointing to a drop yet again, presumably because of the most recent Trump Tweet regarding Iran.

So flip a coin. The SPX found a decent amount of support at the 2800 level. There also appears to be a decent amount of resistance around 2900. Not sure there’s a reason this market will break out of this range for the week. After bleeding off most of the year’s momentum in the past two weeks, we could be in for some sideways action while participants sort out the news.

For now, look for a sideways move for the week. A move of the SPX below 2800 — even intra-day — could be a sign of further downside on the horizon. There seems to be little catalyst (short of a formally inked trade deal with China) to push the market through any of the upward resistance right now.

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.