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Hurry Up and Wait

So we wait… until the Fed goes ahead and raises interest rates again.

The news cycle will be pushing trade war talks or currency shifts or commodity pricing.  But the story is still the Fed.  Do we have enough news — globally — to keep the Fed from hiking rates again?  Probably not…  the low unemployment number is getting hard to ignore.

Don’t take your eye off the ball though.  The story is about the cost of capital.  The narrative may begin to shift as investors ask when the bull market ends, but there’s probably some delay in that process.  For now, M&A activity and consolidation is should keep happening until rates rise to the point it looks less attractive.  The rest of the noise in this market is mostly relevant because folks are trying to figure out how Fed policy will evolve and what it will mean.  But the Fed is still the elephant in the room.

For the week, look for a sideways market with the SPX hanging out between about 1700 and 1750 or so.  Futures look to be opening positive, but the move still appears measured.  For traders out there, looks like more volatility to enjoy.  For investors, looks like more hurry up and wait…

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.

 

How Does Italian Uncertainty Affect US Equities?

The 10-year treasury yield is dropping again — in spite of the Fed’s rate hike campaign.  Presumably this is because many European bond traders are seeking safety in the US while Italy shakes out some issues.  Italian bonds tanked and yields spiked as talk is shifting to the possibility of a post-election exit from the EU.

We’ll skip the (most of) the politics and finger pointing because that’s not what this blog is about.  We want to talk technical shop.  What does all this mean for the equity markets?

In the very short-term, it means a pull-back in equities.  But after a few days of digesting things, a recovery may be in the cards.  When you strip away all of the other noise, here are some key things to keep in mind:

  • US economic data remains pretty solid
  • Earnings season was great
  • Borrowing rates remain low
  • Credit spreads, while widening slightly, are still pretty narrow

Given the macro picture — and the unknown issues in Italy (which is not a huge contributor to the EU economic output) — it seems like this data isn’t enough to derail the bulls just yet.

When looking at the technical picture, the number to watch Tuesday today is 2700 on the SPX.  For the week, keep an eye on the 50-day moving average at 2673 as well.

Resistance is likely to be around 2750 or so.  A close above this level on Friday would be a positive sign for this market.

The reality is that unless Italy is a sign of more significant global contagion, this is likely to remain contained.  It’s not a significant impact on global GDP.  So life probably goes on.

Given the shortened trading week and end of the month, it’s both possible and likely we’ll see higher volatility this week.  S&P futures dipped down to 2690.25 overnight.  It’s possible there will be a move down at the open to test this level.  If so, it is important the equity markets find a support at the 50-day moving average.  Ideally, a reversal with a close above 2700 would confirm support at these levels.  That would indicate the markets have consolidated around the 2700 price and traders are looking for justification to push things higher.

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.

Clawing Back Highs

With trade war rhetoric declining, markets are showing signs of consolidation and retrenchment.  The SPX appears to be setting up a strong support level at 2700 or so.  This bodes well for the bulls out there, as the setup shows signs the January highs could be taken out in the coming weeks.

At this point the SPX has climbed above both the 50, 100, and 200-day moving averages.  Small cap indexes have also started moving more aggressively to the up-side.  Both are good signs that the risk-on trade may be back in vogue.

The SPX 100-day moving average is actually higher than the 50-day.  If these two averages flip (with the 50 above the 100) that is a potential confirmation the markets are gearing to take out January high water markets.

Fingers crossed!

IMPORTANT DISCLOSURE INFORMATION

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

 

Is the Bull Market Back On?

Last week may have been the break-out traders have been looking for as major indexes finished positive for the week.

After several months of correction it looks like the 200-day moving average for the SPX is likely to hold support.  It has been tested several times.  Each time a wave of buyers showed up.  This is classic correction/recovery territory for a bull market.

The recent push higher has driven the markets into a slightly over-bought situation, but this may not lead to a significant pull-back from here.  If the SPX were to pull back though, it support is likely to materialize at the 2700 level, or just below at the 50-day moving average.

The ‘set up’ right now appears to be one for the markets to move higher from here.  Last week’s move validated support and pushed through the psychological resistance level of 2700.  If this week finishes higher it’s likely the markets will continue grinding higher to re-test the January highs for the year.

Ironically, while the markets are showing ‘good news’ with things recovering, it appears to be the ‘bad news’ cycle that keeps things moving higher.  Too good and markets worry the Fed will change monetary policy.  Too bad and things are actually pretty bad.  But not good?  That seems to be the Goldilocks spot:  not good enough for the Fed to change, but not bad enough for money to move out of the markets.

Goofy times we live in.

IMPORTANT DISCLOSURE INFORMATION

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

Mixed Signals Everywhere

With so many ‘this is good, but this is bad’ data points out there, it’s difficult to make heads or tails of this market.  Bull or bear?  Maybe the answer is neither… for now.

The interesting thing that’s been going on, really since Janet Yellen stepped down as FOMC chair, is that volatility — in general — spiked.

Intra-day volatility has remained pretty high.  But week-to-week, it seems like the swings are starting to normalize somewhat.  Could it be as simple as the markets getting used to Jerome Powell at the FOMC now — and realizing there has not been a significant policy shift nor a radical departure in communication style from the Fed?  And if so, is there really that much of a reason to expect the bears to drag this thing down much further?

If the market is primarily concerned with the cost of capital, it seems the corporate earnings picture is proving that the incremental rate hikes are yet to have a significant impact on things.  And the tax cuts are still just being realized in the system.  So…  geopolitics… which haven’t been a significant influencer of the markets (or even volatility for that matter) for the past several years, are all the sudden the big concern for the markets?  Don’t seem to jive with how the markets have behaved the last few years.

Seems more like the markets have to decide whether or not the ‘peak earnings’ theory throw out there by CAT is the real question.  And so far, the answer appears to be no.  So apparently it’s not what have you done for me lately, but what are you going to do for me next, that the market is looking for.

On last week’s conference call we discussed the pennant pattern the S&P500 has been forming through most of 2018.  This week the number to watch is 2688.  A close above this level for the week could be the start of a break-out that has this market re-test the 2018 highs published in January (fun stuff).  A close below the 200-day moving average (currently 2611, but call support 2600) would be a break-out to the other side, and signal a move lower.

We’ll see if this week signals a ‘sell in May and go away’ event, or if the old wive’s tales or the markets are nothing but baloney.  Have a great week!

IMPORTANT DISCLOSURE INFORMATION

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

 

What if Earnings Aren’t Enough?

The theme that’s starting to permeate this market is “what if earnings aren’t enough?”  So far the SP500 has, on average, exceeded Wall Street earnings estimates by around seven percent.  Yet stocks, after beating estimates, haven’t popped.  In fact, it seems the downside penalty this season has been about three times harsher than the upside reward a company receives for an earnings beat.  So what gives?

One theory is that investors are starting to look further down the road as far as earnings go.  Will earnings keep climbing, or was last quarter the end of the good news?

Another theory is that markets are still highly valued on a multiple basis even with the higher earnings.

Both may be true.  The technical signals are a mixed bag right now.  While support for the SPX has held up around the 200-day moving average, so far the index has failed to reach escape velocity and break out above the 50/100 dma’s.  In fact, the 50dma is currently below the 100dma.

These mixed signals, unfortunately, give little indication the market is going to break out to the high side — even with the strong earnings season.  It seems the focus has shifted to ‘everything else’ as investors remain uncomfortable with wear we are deep in the bull market cycle.

Interestingly, the base case from the beginning of the year — with a minimum price target of 2890 — is still on the table.  Some analysts have started to downgrade their expectations for the year though.  2890 is pretty low compared to many estimates out there (to be fair, our ‘minimum’ price target isn’t what’s expected.  We have a more likely target of 2940 on the chart as well – and several projections that were over 3000).

Since last week was a complete wash (SPX opened at 2670.10 and closed at 2670.14), the key for this week will be to see if we trade outside of last week’s trading range.  This puts the low at 2660 and the high at 2717.  A daily close above or below either of these levels would be an indication of directional bias (though a break-out to the high side would be more significant — a drip below 2660 just means we could test the 200dma again).

The markets are still in search of a catalyst.  Until something changes, look for the sideways trend to continue.

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.

Some Algos Are Finding New Buys Out There

While the needle hasn’t exactly moved much, the bleeding seems to have stopped for now as the BF database crept ever-so-slightly higher toward the long side over the weekend.  The move itself is not all that statistically significant.  The fact that the declines stopped may be however.

For now, the trading range has not been broken.  But futures point to a higher open signaling the potential for things to break above the 50-day moving averages.  From a technical perspective, this would indicate the market could be picking up momentum and looking to break-out to the high side from here.

Before you get too excited though, you might want to pump the brakes.  Geopolitical tensions remain high right now – especially with the recent shelling of Syria by the US.  This may further strain relations with Moscow.  It’s not necessarily a direct economic concern given the over-supply of oil right now.  But it’s a wild card as to what they may do and how that impact could ripple through to other players.  It’s the uncertainty factor the markets hate.

As Earnings Season gets into full swing the markets will likely be paying close attention to both earnings AND guidance this round.  Strong guidance will be important.  Also, keep your ears open for any indications of slowing global economic growth.  The story has been a global coordinated recovery for a while now.  Any signs that the recovery is getting shaky could lead to more uncertainty for this market.

Bottom line, while the story for a higher market is still in place, the wrong sequence of events could spook things and lead us lower.  As of now, the trading range between 2600-to-2700 remains for the S&P500.  The 200-day support and 50-day resistance levels continue to move closer to each other.  As they do, it’s likely the 50-day resistance will fade.  A breach of the 200-day support may still be viewed as problematic though.  More to follow on that one IF we breach that level (currently at 2599 — so we may as well call it 2600 for our purposes).

IMPORTANT DISCLOSURE INFORMATION

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

Is it Finally Bad Enough?

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

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

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

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

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

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

So far this year…

For the week…

IMPORTANT DISCLOSURE INFORMATION

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

50-dma Fail

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

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

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

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

IMPORTANT DISCLOSURE INFORMATION

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

March Madness

Here’s the summary of what seems to matter:

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

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

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

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

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

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

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

IMPORTANT DISCLOSURE INFORMATION

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