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A Trend May Be in Danger

Don’t look now but the trend that was established back when the first vaccine was announced seems to be in jeopardy.

The S&P 500 has been marching its way toward 4000 for weeks now. Of course, this is nothing terribly remarkable in and of itself. Given enough time, the probability of the S&P 500 reaching (and surpassing) 4000 is extremely high. The question is less “if” than “when”.

The original trend was climbing on a pace of approximately a 31 PE for the index. This is a historically high multiple that has been rationalized primarily by historically low interest rates. (Because that risk-free rate of return is so low it throws off other math.)

Looking at last week, the SPX posted its all-time high on Monday then faded sideways over the rest of the week. (Not all the major indexes failed, which is part of why the trend is not ‘dead’ per se, just in danger.)

Looking at the futures for Monday, looks poised to open lower.

The question is, will there be traction? Do markets find buyers here and move higher, or will behavior change?

While the government tracking methods insist inflation is a ways off, more anecdotal measures (like the cost of gas at the pump or groceries in the store) tell a different story. Interrupted supply chains, political red tape, and yes – Covid restrictions – continue to play a significant role in this saga.

A look at the financial sector implies that rates may be rising soon.

If all of this is true, interest rates would risk, multiples would decline, and indexes would likely decline in response.

The wild card is stimulus. It’s really an inflationary tool. The issue is, in the short-term, it changes buying behavior by stimulating the demand side of the curve first. People can literally buy more stuff, so they can drive prices (and profits) higher in the short-term. But longer-term, it changes the supply of money in circulation, reducing its purchasing power. The creates all kinds of knock-on effects in valuation formulas (especially in lending).

The market seems to be digesting all of this now. It would not be surprising if the PE ratio of the S&P 500 began to decline toward more historic norms. Likely it will still remain higher than long-term averages, just not as high as it’s been.

Does this imply a major correction in the markets?

Not necessarily.

If corporate earnings continue to climb – which they very well may, given the probability of stimulus driving demand – earnings could climb while PE ratios decline. In affect, we could see a sort of sideways market where both variables more or less cancel each other out.

If this is the case, the 4000 level could become a bit of a plateau for a while as the index oscillates around it for an earnings season or two while markets figure out where things are going.

Think it sounds crazy? Go look at some of the major real estate markets around the country. Pricing in many areas is at a point where cap ratings are nearing parity with treasuries. It’s almost as if risk-free rate of return is no longer part of the equation.

History, of course, teaches us that markets can remain irrational for longer than expected (and certainly longer than you can remain solvent). So it’s not to suggest prices can’t go higher. It’s to suggest prices are very expensive in certain areas of the market if we see interest rates rise.

And that’s really the key: this market is now built on low interest rates. Any change to this would create systemic shockwaves.

The Fed has more or less opened its playbook up and is telling everyone the calls before they make them. “Rates will stay low” is basically the message. But if for any reason this story changes, things could get interesting quickly.

For this week, the question is whether or not the market resumes the 30-ish PE climb, or if there is more shake-down to come after last week’s sideway move.

The technical patterns have largely been organized and moving higher. However, the next big fat round number (4000) is about here, and that typically means there’s some oscillation as markets evaluate bigger picture metrics.

Also, we’re in the middle of earnings season right now. That will quickly taper off and we’ll begin to look toward Q2 for the next trend confirmation.

On the upside, resistance is likely at the 4000 level, with some intermediate resistance at 3975/3986.

On the downside, support is likely around 3872. If that fails, look for 3858, and an extreme downside of 3812.

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.

Pushing the Pause Button

Last week the S&P 500 managed a mixed bag – down for the week, with positive trading days both Thursday and Friday. What does it mean?

Technically, it looks like the up-trend has been interrupted by a sideways trend.

A couple weeks ago, when markets were aggressively recovering from the September slump, we discussed a possible push to new highs… OR… and this is the gotcha, we could see a side-step if you will — a sideways market with little significant commitment either way.

The up-trend was primarily driven by the hope for more stimulus. As those hopes have faded, a bit more of a wait-and-see attitude has emerged. This makes sense given the election is now just over a week away. (Markets aren’t known for their patience, but in this case, the policy differences between the two candidates are night and day, so absent a really good reason to ignore it, we may as well pay attention).

The underlying disposition of the BigFoot database contintues to improve. However, that rate of change has also slowed dramatically. So at this point, the momentum has stalled.

Given this stall, there’s little that would appear to drive the markets materially higher or lower for the week. That sets up a sideways range that likely stays between 3517 on the high side, and 3375(ish, this number is a little more vague) on the low side.

The bigger concern this week is some form of noteworthy bad news. Given the minimal downside support right now it’s possible the 50-day moving average would fail and the index could take a more aggressive rip down to the 100-day moving average at 3300. That’s close to a 5-percent decline. It’s a lot — but not for a year like 2020. Fortunately the odds of that happening still look pretty low. But… did we mention 2020?

More than likely this week will drift sideways and we’ll see a spike up in volatility. With the election being too close to call — and polling data becoming the next back-up plan if we run out of toilet paper — the markets are looking less at who is predicting what outcome and more at outside systemic threats. Of course, the thing about looking for black swans (systemic threats) is, by definition you don’t know they exist until after you find them. So it’s not particularly clear how one watches out for them.

On this we seem to have learned the hard way: every time you challenge 2020 by suggesting it can’t get worse… Never mind. Let’s not jinx it.

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.

Correction Territory

Don’t look now but the BigFoot Database is turning bearish.

Both the S&P500 and Nasdaq flipped sell signals in the last few days. Only the DJIA still shows a buy.

There’s been a 25% reduction in the number of long positions for the BigFoot database, as the system has silently declined from close to 85% long down to barely over 64% long today.

Compound all of this with the lousy open futures are indicating, and it’s a recipe for the major indexes to slip into correction territory this week.

This will officially ‘break’ the August trend the markets have been enjoying. In fact, several of the big tech names that lead the markets higher in the last rally are entering bear market territory.

While the fear for many is that the economy is going to break down (as we still see many supply chains broken), this is a premature call. In healthy markets, pull-backs are normal. It’s common for traders to sell off profitable positions and ‘rotate’ into other asset classes.

In periods of rotation, markets often pull back to other to previous high levels before the most recent trend. If you’ve ever been on one of our forum calls, you’ve seen this discussed in the technical market review. “Wave overlap” is a common indicator market technicians look for. It is the point at the top of bottom of a prior trend reversed course. When the most recent trend changes, it’s common for markets to move back to a prior high or low in order to ‘test’ buyers to see if those price levels will hold.

With election anxieties climbing, it is not surprising the markets are taking a breather and giving back some gains. The better question is, will this be the start of a the next bear market? Or are markets simply experiencing asset rotation?

This week will be a valuable data point. It will be the fourth week since the S&P 500 peaked and began its pull-back. It is also noteworthy that the downside projections alight with multiple prior wave peaks.

The extreme for the week is down near 3200. That’s a decline of about 3.5 percent; no fun, but survivable. That is also just a shade below the 10% retracement level, which would make the move an official correction.

Perhaps it’s a healthy move for markets. However, it’s a fairly extreme move. What the last several months have shown is that these markets can move in aggressive fashion. The declines in March happened in just a few weeks. So when it goes, it goes quickly.

And a four-week correction would be pretty quick. In fact, the SPX is already looking over-sold going into this week. So, while an outside possibility, there is still potential that some will ‘buy the dip’ at this point. Many of the large tech companies — the same companies that were viewed as the safe havens in the last pull-back — are trading at prices not seen since July.

So this week stands to be important in the analysis picture. To buy the dip or not? Given the nature of Washington, it may simply be that markets move sideways for the next several weeks. If markets find a foothold here, it sets up a sideways and somewhat range-bound scenario between now and the election.

Here are the critical numbers for the week:

Support: 3265 / 3218 / 3204

Resistance: 3343 / 3393

Odds are pretty good that things don’t melt down further from here… no guarantees of course. But there is a lot of support over 3200. A failure there and we’ll have more to discuss.

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.

Resistance Test Ahead

The S&P 500 is poised to test it’s June 8th resistance area this week. This could be a significant ‘tell’ for the markets if we’re able to finish the week above the 3233.13 intra-day high hit six weeks ago.

While major indexes have climbed for the past several weeks, the underlying technical data has been less confirming of this pattern. Many stocks, still above their 200-day-moving-averages have slipped below their respective 50-day-moving-averages. This subtle show of disorganization ‘under the hood’ of the major indexes is a small cause for concern.

On the other hand, looking at the BigFoot database, we now see 85.65% long signals on 11,375 tracked positions. The BigFoot Algos used to populate this database use volatility as a component of their decision process. So a high long percentage indicates that over 85% of the stocks being tracked are either buy or hold recommendations by the Aglos.

If there was pause to be had, it’s because the market seems to be reaching a point of agreement: volatility is low, the trend is positive, and the major indexes (not including the Nasdaq, which is already at fresh highs) are looking to test their prior high-water marks.

Points of agreement in the market can be a sign for concern if sentiment shifts suddenly. If you get more sellers than buyers in a market, prices can shift more violently. Of course, what causes something like this to occur is as much superstition as it is data. Are we simply “due” for a correction? No… but that doesn’t preclude it either.

If the technical pattern for the SPX means anything, it looks like more up-side on the horizon. The index put in a significant amount of support at the 3062 price area. A close above the 3233 area mentioned earlier would indicate a potential re-test of the all-time highs for the index.

The only issue here is that the SPX is less and less a reflection of the market at large. We’re beginning to see the mega-caps occupy such a significant portion of the index they are able to hide the activity of many smaller cap players in the index.

The phenomenon is being exaggerated as the mega-caps continue to grow. So we may be in a position of having to start tracking additional indexes to better discern the behavioral patterns of this market.

If one thing is certain in investing… markets change. Principles may not. But tactics must adapt as exploits are worked out of the system.

But for now, we work with what we’ve got… For this week, look for a sideways pattern with a bias to the positive. It’s unlikely to be a straight line up as earnings season is delivering a bag of both winners and losers. The SPX looks poised to challenge 3275/3300 this week.

We’re nearing the end of round 1 of government stimulus in the midst of the Covid crisis. The first round was fairly easy – everything was a mess and officials just wanted to do something… anything… so money was thrown around like confetti. This time around, there is more politics at play. And since political rallies are out, you can bet stimulus will be leveraged as a form of voter influence. So what stimulus looks like, how soon it gets delivered, or even if it gets delivered, are questions the market must sort through.

The Fed has shown it is committed to keeping the bond markets placated for now. But even that has supply/demand limitations. So don’t think the Covid stuff is in the rear view mirror just because major indexes have mostly recovered (look at the Russel value indexes if you want to see where the damage is).

IMPORTANT DISCLOSURE INFORMATION

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

It’s Almost Reckoning Time

Stocks have enjoyed a break from the scrutiny of fundamental analysis since the breakout of Covid. But it’s been more than a quarter since the proverbial mess hit the fan. The question is, will markets continue to give companies that don’t offer guidance a pass?

With earnings season upon us, the expectation is that companies will begin to provide more insight how things are going in our new normal. It remains to be seen if markets can sustain some of the lofty valuations we’ve seen.

There have been some odd winners and losers in this market. Companies that should be okay haven’t been, and vice versa. In fact, we’ve seen some company valuations soar so much it’s hard to rationalize the price no matter what… and still they climb higher.

So here we are, in one of the most unusual times in history, looking for market guidance. And what do we get?

Well, the technicals are squarely in the sideways-and-let’s-wait-and-see camp right now.

Yep. Not predicting much yet.

Some analysts will say we’ve had a bullish reversal and the trillions of stimulus must push things higher. Others will say the economic damage is being hidden by massive stimulus and our day of reckoning is still ahead.

They may both be right. Markets could actually push higher from here as some companies surprise on earnings. But that doesn’t mean the structural damage to the economy isn’t real.

The experiment of modern monetary theory is playing out in real time at this point. We don’t really know if it will work or not… at least not long term.

Oh, sure, we know it’s working right this second. But we don’t know what happens when tax payments get skipped; when banks have to deal with rent forbearance; when unemployment bonuses run out… who actually pays for all of this?

And if the answer is ‘no one does,’ that’s where we probably jump the economic shark. Because the US dollar is built on the faith and credit of the US government… and one has to ask: how much faith can we have in a currency that has nothing backing it?

But for today… the futures are positive, and the markets have again held support near the 200-day moving averages. For the SPX, the 50-day moving average is back above the 100 (and may cross above the 200 in the next week or two). Heck, even the BigFoot Market Macro has flipped positive again.

So, despite all the concerns, the market is showings signs of recovery.

This is not to say things are healthy. After all, the ‘markets’ are heavily swayed by the mega-mega-market-caps of a handful of stocks. And tech continues to enjoy stratospheric valuations in many cases… But for this week at least, it seems all is well.

So we’ll watch closely as earnings season unfolds. The technicals have rebounded from March lows, and moved into a mostly sideways-to-slightly-positive pattern since early April. Now we get to watch earnings season.

For the week, look for a positive bias, but it’s still unlikely we’ll see escape velocity. Next week the earnings should really start to roll in. As they do, we should get a better picture of market health.

Look for SPX 3062/3000 support, and about 3210/3225 for resistance this 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.

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.

I Don’t Get It, But That Doesn’t Matter

I’ll admit it: this market baffles me sometimes. Here we in the midst of an economic shut-down — unemployment has exploded; bankruptcies are popping up all over the place; profits are in the tank — yet this market charges higher.

Even the BigFoot Database has shown improvement as the number of total long positions has climbed over 33%. That’s up 50% from a week ago. So clearly there’s some momentum under this thing.

The question is, is the action healthy? Not if we look at earnings, which, according to JP Morgan are down over 47% on average for companies reporting.

It’s fine… markets are forward looking… the economy is about to turn back on and thing will go back to normal.

Yeah, right…

The economy might turn back on, but social distancing policies have become a real thing. And large parts of the economy will not be the same… especially restaurants and entertainment.

Also, markets failed to render a new intra-day high last week. Could be nothing — just trader activity — Or… could mean we’re running out of buyers and this is the price level for a while.

As discussed in prior blogs, we’re at a resistance point technically. Markets have drifted sideways for the last few weeks as the 2950-ish range but are yet to close above or ‘beak out’ from this level.

If this market were to follow a more typical pattern from here, we’d expect a pull back to at least 2800 or so (and more likely 2650ish). I use these vague levels because… frankly… this market is making up new rules as we go, fueled by mind-boggling Federal Reserve intervention and Government stimulus.

That rocket fuel has done a solid job stabilizing the bond markets and keeping hope in the economy. But… it’s been a while. And rocket fuel burns off. The Fed can keep buying bonds, but what happens next? How long can we pay people not to work?

Of course, these are rhetorical questions. But they do have a bearing on the stock market. For a season now, these markets have moved based on how the fight against Covid-19 has been going. That’s shifting though… reality is going to have to creep into this thing. And the big unknown is whether or not all this new debt of Uncle Sam’s will have any unintended consequences.

Meanwhile, we will deal with our moment-to-moment day-by-day analysis. And futures say the market should head lower… of course, it looked like they said this last week as well. What we ended up with is more of a sideways pattern.

The 200-day moving average has declined to close to 3000. If this market manages to close above this area by month end we could actually see a macro re-purchase signal. But this is a long ways off, and 3000 is currently much more of a resistance level than a support level.

Pricing patterns suggest a sideways-to-negative bias this week, with 2950 continuing as resistance, and 2873 as support. But like I said earlier, I don’t get it… this market has done with it sometimes does: prove the greatest possible number of people wrong at any given time.

My take – I still think this thing is over-baked and we’re trading on hope. And I think we can (and probably will) move lower in this trend. What I hear from a lot of folks is desperation – as if they missed the bottom and somehow missed their chance on this thing.

Maybe… But typically, right about the time you throw in the towel is when the market knows. At some point, data will matter again… then again, I don’t get this market (but that doesn’t matter)…

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.

May the Fourth Be With You

If bear markets are the Empire, this week the Empire may strike back. Based on weekend futures markets stocks are poised to drop Monday, with a strong indication of follow-through for the week.

Last week we hit a significant technical level as the S&P 500 pushed above 2950 intra-day last Wednesday. This, by most measures, fulfilled the 61.8% Fibonacci retracement many technicians were looking for.

While this is no guarantee, you may begin to see the tune change for some analysts as more people jump on the band wagon that this price move from the March 23 lows is a bear market rally. This may also be a shift in discussion from “V-shaped” recovery to some other alphabet (L, W, U… zig-zag, whatever).

The reality is that the economic impact of this thing is starting to set in. Some companies will survive but others will hurt. And when enough companies hurt, economic activity slows. That hurts the winners too in most cases. So even a big company like Amazon — a company that seemingly has the perfect business model and opportunity during this crisis — can still get punished by increased costs and fickle investors.

Looking ahead the crystal ball is murky. The technical outlook is not encouraging if the typical trend emerges. If we really are in a bear market, a resumption of the downtrend should resume, and we’ll decline for a season. The real question is whether or not we re-test the March 23 lows.

No one really knows the answer yet. If the virus turns out to be less deadly than hoped, we start to re-open the economy and things start spinning again. If it’s more deadly than hoped, we sit on our hands longer. The states that have opted to re-open will be case studies closely watched for a bit. Spike in cases and hospitalizations? Market probably gets nervous. No spike, market drifts sideways for a bit and finds its footing.

For this week, the primary support level looks to be 2683/2650. Given the pattern of fairly aggressive volatility, it would not be out of line to see a pull-back to this level. That’s about a 5-to-6.5% decline. Historically that seems like a big move for a week (and perhaps it will take a couple weeks to unfold), but that’s not out-of-line for the way this market has been moving recently.

Up-side resistance would be at the 2950/3000 levels again. That’s basically both the 100 and 200 day moving averages.

Other noteworthy stats we’re watching: all three of the BigFoot Macros are negative… so that’s a pretty ugly thing. The database climbed from about 21% long to 23% long — so, green shoot — but still, not enough to move the needle much. It’s still a very bearish percent-long at this point.

The other side-show we should keep watching is Washington. Are they going to come out with some sort of direct-to-consumer money dump? Some form of universal basic income (though they won’t call it that)? If so, that could be lighter fluid for this market. So… we’ll have to wait and see.

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.

Ready Q4

End of quarter rebalancing may generate some volatility today. Otherwise, markets look like they are staged to continue their sideways oscillation.

There is little technically to suggest there is a breakout in either direction. Instead, it seems the all-time highs of the SPX remain resistance, and the 100-day moving average remains as support.

The big-picture story appears little changed. The Fed is supporting the markets by maintaining low interest. Trade war headwinds are preventing the stock markets from climbing much higher. So we remain stuck in this sideways pattern.

Until something material changes, it appears there is little the market should expect in terms of a major move in either direction.

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.