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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.

More Guessing

The guessing continues as data evolves.

Don’t look now, but the BigFoot system flipped a circuit-breaker. We lost the credit macro.

If you’ve been following this saga the last few weeks you’ll know this is a tricky deal because the (St. Louis) Fed changed the way they calculate one of the data points that feeds this signal. This is a little like when the powers that be decided to remove food and energy from the CPI calculation… it changes things. We’ve manually reconstructed the data for the index for now, and the signal did, in fact, go negative.

Here’s where we’re concerned –

  1. the Credit Macro has been quite reliable over time as an indicator of economic health. Typically, if this thing fails (which is rare) this is the real deal… bad stuff typically follows
  2. The overall database of macro indicators actually added net-long positions (albeit only about 1%, so a pretty small number)
  3. Things are moving FAST these days, and government intervention has been swift…

What we’re saying is our typically ‘old faithful’ BigFoot Credit Macro has us watching closely because the government appears to be trying to manipulate things such that we could see a rapid stabilization in credit markets, thus whip-sawing this indicator. Yes, it’s out, but will it stay out?

There are some suggesting we’ve already seen the bottom of this market. Perhaps they’re right. Perhaps not. Since the total number of infected is essentially unknown, we’re in a statistical quandary… which data do we use to build our expectations?

Oh yeah… it’s still guessing.

So, for now, we’ll look at what the market seems to be giving us, which is about a 300 point SPX range between 2350 and 2650 until we get further clarity. Trying to do a lot more technical analysis on this stuff is, as I said, just a guessing game.

As the data changes, we’ll evolve. Until then, the word remains caution. It’s probably too soon to sound the all-clear on this one.

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.

What a Mess

Pricing is basically guessing at this point. A stimulus package may completely alter economic modeling as we currently know it. From loan payment deferrals to utility bill deferrals, it’s all up in the air. And that means uncertainty…

Markets hate uncertainty. And now we get to add politics to the mix, as Congress can’t seem to get a bipartisan stimulus package pulled together… yet.

Meanwhile, each state is managing their viral response independently.

In short, everything in is flux. This is not a recipe for happy markets.

Despite the fact markets are already way down it does not appear the blood-letting is subsiding yet. As of the writing of this blog the futures had hit their 5% limits. This does not bode well for Monday’s market open.

It appears the self-fulfilling prophecy have declared 2000 to be the ‘target’ for this pull-back. At this point, the technical trend for the week shows an SPX lose of about 2085.

The problem is, there are some technical indications that is not the bottom. It could be 2000… it could also be 1810… or even worse, 1713. Shall I continue? (Probably not, honestly… about 40-50% appears to be the likely downside to this thing, but we need to see how the news cycle evolves going into April. Do we see massive spikes in death rates, or does this end up being over-blown?)

Whatever the case, the set-up for this week looks pretty negative. If a strong stimulus package emerges perhaps things will shift. Otherwise, momentum remains strongly to the downside.

Downside Target appears to be 2085 for the week
Here you can see some of the more extreme downside projections

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.

That Escalated Quickly

It’s 4am on the West Coast. Markets looked shakey as I went to sleep. And for whatever reason, sleep just wasn’t happening. So at 3am I checked the futures markets. They’re suspended…

Well, since I’m not sleeping anyway, let’s take the time to dig into this thing a little more than a typical Monday (and yes, this is longer than typical – and probably more typos than typical – no apologies even).

So Sunday night into Monday in the wee hours of the morning, the futures markets were halted as European stocks tumbled and traders pushed the futures lower. And by lower, I mean… much lower. Like over 8% lower.

Apparently oil is collapsing. The details are coming in. But I don’t yet have all the pieces sorted out. It sounds like Saudi Arabia is engaging in some form of “price war” if headlines are to be believed (which I generally take with a grain of salt these days).

This puts the markets in a tough place. Essentially, whether it should be or not, the Covid-19 coronavirus has become a Black Swan Event. The fear of economic impact has changed behavior, thus creating the economic impact everyone fears.

History will discuss whether or not a reckless media drove the world toward panic, or whether this was, in fact, a justified reaction. But today, it’s neither useful nor practical to discuss these points. Instead, we must discuss what — if anything — there is to do as investors.

The challenge of this event is the speed at which it has gripped the markets. In essence, just 12 trading days ago, the S&P 500 was at all-time highs and markets were climbing higher. Then the coronavirus scare took hold. Since then we’ve seen a market route.

The S&P 500 (SPX) is down over 12 percent in 12 days. Based on overnight futures, it’s likely to drop another 4+ percent today. And it’s hard to know where the end is.

Don’t mistake this analysis as panic. It is not. This is merely observation of the behaviors of both the public and government reactions.

If the standard protocol for virus management is quarantine, this WILL have an economic impact on our global economy. Already we’re seeing cruise ships held out of port – travel restrictions – and runs on toilet paper and hand sanitizer. Now we’re seeing local governments declare states of emergency (Oregon joined the list yesterday). This is no longer an academic exercise. The impact is real.

Whether it is rational or not is not the point. It is happening.

The speed and timing of this event creates a challenge for the BigFoot algorithms. They are built on week-over-week moving indicators to avoid whip-saw trading. And all this activity has been compressed into essentially two weeks.

Currently, for the SPX and NASDAQ, the BigFoot trading algorithms have sell signals. For the DJIA, the algo’s still have a hold signal. But after this week, assuming the market route continues, we’ll likely see that signal flip to sell as well. We’ve also seen the overall disposition of the trading database fall to about 51% long. This is another 4% lower than last week’s 55%-ish reading. And we’re well off the low 80% long levels of just a month ago.

Why hasn’t it sold sooner? Because the markets have been on such an aggressive upward move for so long, it’s skewed all the comparative data the system uses to make trades.

The weird thing is, compared to two weeks ago, the markets look terrible. But compared to six months ago, we’re still about flat. That’s not that bad relatively speaking. The trading tools understand this. And they aren’t swayed by our emotions. They remain consistent and statistically driven. It is our own emotions we must beware of.

If one is to override the decisions of the system (not suggesting you do this), one must believe the conditions will deteriorate further. In essence, you must front-run the signals. And to do so is to break from the process, the statistics, and all the data to this point the system is relying on. Again, beware of allowing emotions to drive this process (as historically, investor emotions tend to create mistakes that cost).

Of course, no two markets are alike. Historically, corrections and bear markets each have their own unique circumstances that drive their outcomes. So historical statistics are but a guide here. Nevertheless, to override the signals is to introduce new and unpredictable variables into your investment process.

Of course, the big questions I suspect most are wondering is, when will the macro signals change (since they are all still long at this time)? And what do we think the markets may do?

First, the macros.

There are presently three marco indicators in the BigFoot system. Each looks at data from a different angle.

The market macro, not surprisingly, looks at market prices. It is a slow-moving indicator that can only change on a monthly basis. Currently, the signal is long, but will flip to sell if the SPX fails to close above 3160 at the end of March. As of right now, there appears to be a high probability this will occur.

The economic macro is a different animal. It follows a weekly signal, so can be more active than the market macro. It is built on a neural network that is constantly analyzing data to adapt. It will require more significant shifts in economic data before it flips to sell. This does not appear to be on the near-term horizon. Then again, data is moving quickly all the sudden.

The credit macro, like the economic macro, is a weekly signal. It uses a different artificial intelligence system to track key data points. In essence, it tracks risk in the credit system. If we see default rates on the rise, this indicator will likely flip as well. But for now, it appears stable.

So, in the near-term, it looks like the algo system is triggering a bunch of sells and holds — including the major indexes. But the macros remain long (at least for now). But we’re watching the market algo in anticipation it will fip at the end of the month.

Understanding how the algo’s and macro’s are viewing the data, this brings us to the discussion portion of our blog today: what are the market technicals telling us?

In short, this thing is ugly. The fall has been so rapid there is very little in the form of support. So now we look to big fat round numbers and emotional lines in the sand.

What does that mean? Well, the big fat round numbers are the ones that are easy to see on a chart… numbers that end in 0… like 3000, or 2900, or 2800… or 2650, as you’ll see in a minute.

And the emotional lines in the sand? Those are things like the 50, 100, or 200-day moving averages, or a 10% pull-back of 20% pull-back from a high value.

So far, the SPX is breaking down in all of these categories save one: the 20% pull-back. To investment professionals, this is the official bear market line in the sand. (And yes, this blog is being written with the idea that most who read it are pro’s, but some of you may not be – or some of your pro’s actually sent you here to read this so you can understand how we are analyzing things are attempting to keep logic and reason in the investment equation).

So what would be a legalistic bear market? A close below 2714.816 by my math.

So let’s talk numbers. The SPX closed at 2972.37 on Friday, March 6, 2020. Futures are down big. And we’re looking for the floor. Where might we find it?

Well, here are the key numbers as best I can tell:

2943 / 2911 / 2857 / 2772 / 2725 / 2681 / 2609 / 2407 / 2351

Based on the futures, we’re likely to blow past 2911 at the open today. So 2857/2850 will be the next line in the sand. But futures were halted at what looks more like 2819 or so. If that’s true, the markets may be testing the 2772 level shortly.

Bottom line, sellers outweigh buyers right now. Governments have stepped in to attempt to manage the spread of Covid-19, and economic activity is being affected. The follow-on effects are still yet unknown. But we know this: the up-trend has failed, and there is massive momentum to the downside right now. If the futures are right, there’s more pain to come.

This is just a guess, but based on the escalating fear, the bear market scenario looks pretty high. If we hit the extremes of the current downside targets, it would be a 30% correction from the peak. That’s rough… but it’s not 2008 rough. (Because when you lose 50% in an investment, you need 100% gain just to break even. When you lose 30%, you “only” need about a 43% recovery to break even. )

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.


Slowing the Bleeding

Unless you’re hiding under a rock you know last week was a mess for the markets. Coronavirus grabbed headlines and panic set in for investors.

At this point, markets are pricing for recession. Trying to make sense of what’s happening is essentially a guessing game. Whether it is or is not likely to happen, the price tells us all we need to know for now.

What we do know is we just saw the worst week in the markets since 2008.

Let’s get to the stuff folks are asking about:

  • Is it over?
  • How bad can it get?
  • What should I do?

First, is it over? There is no way to tell. Anyone that says they know has something to sell.

How bad can it get? Well, as the saying goes, markets can remain irrational longer than you can remain solvent. So it could get worse. But the better question, how much worse? The numbers are moving so fast it’s difficult to get a handle on this. But read on, we’ll try to unpack some critical pricing levels.

What should I do? While none of us can predict the future, we can all take a deep breath, get a hold on our emotions, and make sure we’re using logic and data rather than emotion to drive our decisions. If you’re part of the BigFoot club, that means sticking to a process.

Now, the numbers… just what the heck is happening?

Last week we blew through most every support level on paper. So technical analysis is pretty shaky right now. Stock prices fell… hard. Looking for where things may bounce is pretty much a guessing game. Looking for support… well, we have to look pretty far back in time. So the numbers are less reliable than we’d hope.

Interestingly enough, not a single macro has turned negative for BigFoot. We did see the S&P500 index get an algo-sell. But both the DJIA and NASDAQ only shifted to wait.

If we end March below 3160 the Market Macro should flip negative. But there’s a long time before the end of March. A lot can happen in a situation like this where we’re trading more on conjecture than data.

Here’s what we can look for… note on this week’s charts, no red/yellow/green. Nope, those imply a generally decent probability of likelihood to occur. This week, we’re into the ‘maybe’ zone.

Support appears to be at 2910/2771… and yes, you read that right. There’s virtually no support in between (not to say markets won’t find support in this range, it’s to say there’s nothing material showing up in the charts).

Finding support numbers this week is tough

Longer-term, you can see how far back we have to look to find support.

To find solid support we have to look back close to 2018. That’s pretty shaky.

This week’s price behavior will be important. It’s possible there is a bounce given how over-sold things are. However, it will take some time to shake off the ‘stank’ that this market has taken on over the last week. People are scared, and the behavioral shifts will likely hit the economy. The effects of this behavior are yet to be determined. Suffice it to say, we’ll be talking about this event for some time, even after it passes, as either an excuse or a reason for odd market behaviors.

Hang in there. Keep a cool head. And remember, equity markets are very efficient at transferring money from the impatient to the patient…

SPX braces for a gap down

Is Coronavirus a Black Swan?

If there is such a thing as a self-fulfilling prophecy, the Coronavirus may be on its way to becoming the next ‘black swan’ of this market.

We’ve been asking ourselves the question for some time: what is going to bring this bull market down? After all, since last October, valuations just kept climbing.

Initially the markets shrugged off the idea that Coronavirus was that big of a deal… then some companies started specifically crediting the outbreak with an impact on financial numbers.

No big deal, the impact is baked into the price already.

But perhaps expectations of this outbreak missed the mark. Perhaps this as a lot more serious. A Biblical pandemic even?

Before borrowing a bunch of trouble, let’s look at things in context. The coronavirus is awful… but so is influenza. This is not ebola. While it is potentially lethal, the majority of those infected still survive the illness. This is not to trivialize coronavirus but to give us some perspective.

Currently, coronavirus is part of an active news cycle. It’s unknown, it’s scary, and it’s the perfect train wreck to get folks staring at their screen. In short, it’s an advertiser’s dream.

Since the stock markets have largely dismissed the circus that is Washington DC lately (thought if Bernie Sanders continues to gain momentum this could change) , the coronavirus news cycle keeps viewers glued to the screen. And the unknown factors that seep into the stock market are drawing this out more than the typical 1-week narrative.

So what are we to make of this?

First, a quick breakdown:

Fundamental data, as measured by BigFoot’s economic and credit macros, remains solid. Technical data, as measured by BigFoot’s market macro, is always solidly above any sell threshold.

All three major indexes (DJIA, SPX, NASDAQ) have ‘wait’ indicators… this is neither a sell nor a buy. It is simply an acknowledgment that downside volatility has increased (so buy at your own risk).

When looking at the technical price movement of the SPX, this week is setting up for a big gap down at the open. Futures are indicating somewhere close to 90 points of downside. That’s over 2.5%.

This is definitely a knock on the market’s momentum. But the truth is, the SPX upward pricing channel will not be broken unless the index closes below 2514 this week.

A close below this support level potentially throws everything out of whack. It would mean a close both below the 50-day moving average, and the prior support/capitulation point where buyers showed up to support the markets.

It also means there is very little pricing support all the way down to 3036 or so… so basically a drop back to the 3000 level for the SPX.

For the non-math-whiz reading this, that’s a full-blown correction.

But keep in mind, this market is gapping lower after a big up-trend. And it’s doing so on speculation and fear.

Perhaps the markets are getting it right. Maybe this is a pandemic-level event and global economies are going to completely grind to a halt. Or perhaps this is a classic over-reaction to fear.

The reality is, this market has been moving higher and higher with virtually no resistance since last October. It has spend most of its time at the top of its pricing range. This projected drop simply flips from the top of the 1-month trading range (1.5 standard deviations above the 1-month pricing average) to the bottom of the range (1.5 SD the below).

The jarring and scary nature of a pull-back like this can be enough to shake anyone’s confidence in this market. But keep in mind a handful of other odd details:

Oil is dropping but gold is climbing in price.

The US dollar is climbing, treasury prices have been dropping… and gold is climbing.

The gold thing is likely fear, where the rest of the data says this underpinnings of this market are fundamentally unchanged.

If anything, the spread of Coronavirus may further strengthen the US dollar, as other global economies are weaker that the US already. This could lead to further weakness, exacerbating the dollar’s strength… not great for trade, but great for keeping treasury yields low.

Bottom line: one day does not a trend make.

Monday is likely to be painful. The real interesting thing will be not how we open but how we close. If markets manage to open to big losses but pair more than 50% of those losses by close, that’s probably a pretty good sign that equities are still an attractive asset.

Don’t let the man behind the curtain (the media) fool you. Stick to the data and a process. This bull will eventually die. But let’s let the numbers do the killing rather than the rumors.

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.

Hard to Fight a Trend

This market has a lot of momentum.

Yes, it’s an underwhelming statement; but it’s nonetheless true. The stock market has the wind at its back these days. Even in the face of scary headlines about Coronavirus epidemics.

The reality is that Coronavirus is having an effect on systemic profitability. It has altered behaviors and shuttered factories for many multinational players. The result is, not surprisingly, profit headwinds.

And yet this market goes higher.

Did we mention this market has a lot of momentum?

This is becoming a more concerning sign as retail investors shrug off concerns, rally behind the cry of a ‘good economy,’ and continue to push stocks to new all-time highs.

Currently, it’s tough to peg just how high this market can go. But the down-side has given us a few technical hints.

The January pull-back for the SPX set up a consolidation wave with support around 3285. This is a little less than three percent below current market levels – not exactly a massive pull-back if those numbers get tested – but enough to give traders a new entry point. And frankly, that seems to be the pattern of this market: buy the dips.

We’ve seen this before, and markets went significantly higher during 2019 when this happened. Will history repeat itself? Who knows? But did we mention this market has a lot of momentum?

Until evidence suggests otherwise, it may be wise not to fight the tape too much on this one. This bull will end, but the eminent demise is not evident at this time.

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.

Circuit Breakers Tripped

Well, we’re in for it now. The Kansas City Chiefs won the Super Bowl. And certainly congratulations are in order. But what does this mean for the markets?

If the Super Bowl Indicator is to be believed, we’re in for a bear market.

Of course, the accuracy of this indicator is highly questionable (having been wrong the last four years in a row now). Still, on a purely random basis… maybe?

When considering other factors in this market, it looks like last week’s negative move was ‘good’ in the sense that it moved us out of over-bought territory.

The concern (if there is one) is that we tripped some minor circuit breakers in the BigFoot system. Our confirming indicators shifted from buy to hold on the major stock indexes.

This is not in and of itself a big deal. The confirming indicators have historically been more accurate as entry signals than exit signals (at least anecdotally). Nevertheless, they flipped. So, for the time being, the system is warning against deploying new capital (at least into the indexes – the signals are actually intended to be used on a position-by-position basis).

What this circuit breaker does imply is that markets have pulled back enough we may be moving into a consolidation phase rather than an expansion phase.

The technical picture appears to confirm this. Last week’s move down was not a surprise. Still, the move was enough that it caught people’s attention. And sentiment may shift.

We forget that many market participants have not adjusted their expectations with inflation. To some, a 600-point drop in the Dow still ‘feels’ like a massive day. In reality, it’s less than a two percent decline. So, while a real move, it’s nothing like a 5-to-10 percent move that some associate such a number with.

Regardless of the fact such a data anchor is flawed, the move can damage sentiment. (This sounds worse than it may be.) The good news about a shift in sentiment is that it leaves room for markets to potentially keep climbing a wall of worry.

In reality, little has changed for this market. Despite fears of coronavirus and election uncertainty, the underpinnings of the economy continue to remain relatively intact. And the conditions that drove us to this point are relatively unchanged. Which means the fundamental elements moving this market – low rates and an accomodative Fed – continue to drive this market.

So, absent new evidence, you keep doing what the market tells you to do… until it tells you to do something else.

Right now, on a technical/quantitative basis, the market still says the bull is intact. Last week’s move was corrective in nature, but the 50-day moving average for the SPX held as support.

For the week, keep an eye on 3200 for the SPX. If this support holds the odds look good for a recovery and re-challenge of the highs of the year. If it’s breached, next week’s blog should be more interesting.

Happy February – and fingers crossed the Ground Hog was right yesterday.

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.

Breather

If the futures are any indicator, this equity markets are in for a breather Monday. Signs point to a drop of over 1.5% for major indexes.

Before you go panicking about this pull back, be warned, this was not unexpected. Stocks have been on a major tear, trading about 1.5 standard deviations above their monthly trading average for the past several weeks. This kind of run is bound to tempt some short-term traders into profit taking.

Now that earnings season is fully underway and the Q2 projections are rolling out, it makes sense for markets to give back a little as traders trim gains.

The bigger question folks are probably asking is, ‘is this the start of something more serious?’

Too early to tell, but probably not ‘serious serious.’ Most of these pull-backs have been met with folks piling back into the markets. We need to see a sign that this is not going to be the case. However, given the low rates around the globe, one has to ask two big questions: 1) where else would I put my money? and 2) Has the Fed made any material changes in monetary policy that would lead me to change tactics right now?

The short answer to both of those questions leads to the short-term conclusion that the stock market is still the most likely option for folks seeking anything more than preservation of capital.

When looking at the support/resistance areas, the down-side target for this move is approximately 3217/3196. The lower of these figures is the 50-day moving average. The higher is about 1.5 standard deviations below the average 1-month trading range (a reversal of the last month’s trend). For context, that’s about a 2.3%-to-3% pull-back; not too ‘serious’ if that’s the extent of it.

Of course, should those support areas fail, a more ‘serious’ correction phase will need to be examined. For now, a pull-back and recovery towards or above prior highs looks likely to play out over the coming week or so.

As a side note, the coronavirus, while garnering headlines, is not yet to a point the markets are panicked about it. However, this is worth tracking.

The fact that the US Embassy has evacuated all US personnel is somewhat disconcerting. While the spread of the virus is relatively small at this time, one has to wonder what is NOT being said when we figure it’s safer to clear out an embassy than it is to just wash your hands more often. If this becomes a true pandemic, all bets are off.

We’ll keep an eye on this not-yet-situation-that-could-become-a-situation, but for now, let’s let the main thing stay the main thing.

Now, for the picture you’ve all been waiting for… markets go down, but probably back up later this week… assuming this coronavirus thing stays mainly in China… we’ll see…

SPX projections for the week of January 27th… take with the usual grain of salt
Note the 50-day moving average and support arrow – this is the area to watch. Pierce this and more down-side could be in the works

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.

Melt Up

I’ve always thought ‘Melt Up’ was a stupid term. Nevertheless, it appears to be applicable. By all measures my typical measures this market is overbought. The SPX is nearly two standard deviations above the monthly pricing average (and has been such for several days now). It’s well above it’s 50/100/200 day trading averages. And even more remarkable, there appears to be no end in sight.

Of course, there is an end. It may be just over the horizon. It’s just tricky to see in these conditions.

With the DJIA breaking through 29,000, there’s a general wave of optimism. A China trade deal? Optimism. And impeachment? Who cares?… The markets seem to have their eye on the ball right now.

Washington is a sideshow. Trade, while an issue, seems largely priced into expectations. So bad news is no news, and good news is worth pushing this market even higher. Every pull-back is met with buyers who want to get into the party.

Lets be clear: this won’t go on forever. And from a technical perspective, this thing is getting into rarefied air. Trying to peg numbers is a pretty exotic extrapolation.

On the high side, the SPX seems to be on a mission to break above 3300 — this week. That’s a pretty big deal considering the 2020 targets are 3573/3770 for the year.

On the low side, 3217 for the week. But there’s a much lower price point that may haunt us: 3145. This would be a much more material pull-back. But again, that number, while real, doesn’t seem to be on anyone’s radar this week.

In fact, this market seems to be looking for any reason to move higher. It would be a major concern if it weren’t for the general feelings of pessimism that still seem to be the flavor of the day. (Right about the time everyone feels pretty good about things should be the time we really start to worry)

Earnings season may begin to shift sentiment. But even that seems iffy. It seems as if this market is looking at earnings over a year out. As long as the global growth figures continue to climb, and the FED shows no signs of changing policy, the melt up has a good chance of continuing.

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.