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A New Wrinkle

Last week introduced a new variable into the analysis:  trade wars.

Not surprisingly, the markets declined.  The bigger question is, now what?

Futures are forecasting another drop this morning.  The question is, will the 100-day moving average hold support again?  If not, we’re looking at the 200-day moving average.  That’s a decline on the SP500 of over 4% from current levels.

Unfortunately, there’s little technical indication which scenario is going to play out.  Given the continued shift in sentiment with ever-increasing anti-globalist policies out of the White House, the probability of a bigger sell-off is rising — even with decent overall fundamental economic data.

Look for a negative open today, with a lot of price volatility around the 100-day moving average.  Should it hold, markets will likely reverse course and head toward 2775.  Otherwise, we could be looking at another 150-point drop today.

Flip a coin as to which outcome we get…  either way, this week should be a pretty good tell.

IMPORTANT DISCLOSURE INFORMATION

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

The Old Normal?

It appears some of the volatility of the last few weeks may be dissipating from the markets finally.  Last week’s move in the S&P500 finished every-so-slightly higher, ending the week-over-week slide for the index.  It appears the price movement may stay between 2700 and 2800 for the week (and yes, 100 points sounds like a big range, until you realize the S&P500 had been having intra-day swings of over 100 points just three weeks ago.

Perhaps the biggest thing to watch for the week is Jerome Powell.  While there is a fair amount of fundamental economic data that would typically move the markets this week, the markets are looking for assurance that the new Fed Chair is not going to deviate largely from his predecessor Yellen’s generally dovish policies.  A slow, steady, data-dependent and measured approach to increasing interest rates is what the market is looking for.  Anything to the contrary and we could see volatility spike yet again.

With the futures are indicating a push for the the S&P500 back into the mid 2750’s again, it’s likely the trading range for the week will pivot around this amount.  While it’s possible the markets could break out to the high side, the set-up appears more measured at this point.  It looks like more range-bound trading as the markets — with 2700 being the primary support level, and 2800 being the primary resistance level — until the markets are comfortable Fed policy isn’t going to radically shift.

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.

Watch the FOMC

Markets have been on a v-shaped recovery ever since the sell-off started a few weeks ago.  Since bottoming on February 9th there’s been an aggressive recovery.  But there’s also been an interesting shift in sentiment.  Has good news become bad news again?  (Meaning the markets think good economic data could force the Fed into raising interest rates?)

Wednesday will be the release of FOMC notes at 2pm Eastern.  That will be where we get a better sense of what’s going on.  Provided the message remains consistent — that the Fed isn’t going to pull the rug out from under anyone, and they’ll continue providing transparent forward guidance — everything should move forward business-as-usual.

For the week, 2800/2825 are the upside resistance areas, but a technical retest of 1700 appears likely, with a more extreme re-test of 2650 or so (the 200-day moving average).  A pull-back to these levels would not be viewed as a trend failure or recovery failure unless there is a shift in macro-economic data.

The BigFoot database has stabilized and macro’s remain long.  Expect some mid-day volatility on Wednesday as the market sorts out a direction.  This shortened week may end up being a decision point for whether or not this market can regroup and move higher.  Based on how the technical patterns have emerged so far, it appears the short-term damage is mostly done, and the longer-term bull market is resuming.

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 Carnage Over?

Last week equity markets officially hit correction territory before bouncing off the lows of the week to finish up on Friday.

So, is the carnage over?  Are markets done selling off?

From a technical analysis story, the jury is still out.

What was significant in the pricing action is the 200-day moving average for most of the major indexes.  This seemed to be the line in the sand where buyers stepped in and turned things around.  From there, the markets moved sharply higher.  Over the weekend the futures markets are indicating a continuation of this trend.  So — good sign.

Before we call the ‘all clear’ signal, we need to look at some of the bigger-picture issues though.

First off, the bigger picture has been a series of lower highs and lower lows.  So this trend has been one with big volatility and stair-steps down.  Even while futures are pointing to a gap higher at the open — and a push toward as high as 2650 perhaps — the level on the futures to watch is 2686.  That was the last peak in the futures that would need to be passed in order to break the pattern of lower highs.  We see that, maybe we can start getting excited that buyers are stepping back into this market.

Overall, market conditions appear to be oversold.  Still, caution is the word of the day.  There was significant sentiment damage last week.  And a case can be made that the markets are going through a re-evaluation period to determine the next regime of analysis.  With the Fed ‘normalizing’ rates, the ‘Fed Put’ may be over.  What will be the next key element to watch that drives things higher or lower?

On top of that, we had easily the largest single-weekend shift in the BigFoot database in over two years.  The database slipped from 68% long all the way down to 48.66% long.  That means roughly 20% of the database got sell signals — or nearly one third of every long position in the system.  A move of that significance shouldn’t be ignored.

Granted, the BigFoot algorithms are built around volatility as a key component of the decision factor.  And the volatility spike has been huge.  It’s possible to get a false signal if volatility were to somehow wash back out of the system as quickly as it appeared a couple weeks ago.  It’s difficult to find a scenario where such conditions would manifest in real life though.

So caution is the deal.

The Macro indicators are still long in the system.  They’ve slipped some – but nothing like the algo database.  The Macro’s still paint a picture of an overall healthy market and economy at this time.

So what we have is a mixed bag.  The markets are over-sold, and the volatility algo’s have lit up like Christmas.  But the Macro’s are still long, and haven’t shifted much.  So…  caution…  wait and see.

Since the major indexes all found support at the 200-day moving average last week, this is the key area to watch for support right now.  Alas, indexes also fell below their 50-day and 100-day moving averages.  So these will be resistance – with the 50-day being the number to watch, as the S&P500 is sitting close to the 100-day already.

Hang onto your hats gang.  We may be in for another volatile week.  We’ll see if the S&P500 can re-take the 1700 level.  It looks promising – and if it happens – good technical sign.  We’re re-evaluate 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.

 

As You Were Not

If you thought this market only goes up, Friday was a painful reminder that things can fall too.  Markets experienced their worst day in about two years with the DJIA falling over 665 points and S&P500 falling over 65 points.

Presumably this move was a result of a cocktail of economic news, the most recent of which was a strong jobs report.  It appears the big-picture concern is the Fed may have to take more significant action and raise interest rates more aggressively if economic data continues to point toward increased inflation.  Apparently this was enough to start the feeding frenzy that was last week — with Friday being the biggest drop we’ve seen in some time.

With the unconstrained bull market officially shaken, what happens next?

First, let’s be clear.  The bull market was not ‘killed’ by one week of activity.  In fact, economic data continues to look strong.  However, as has been discussed in both this blog and in weekly forum calls, the markets were over-bought and the probability for a pull-back was high.  It appears we’re finally seeing some mean reversion as volatility returns.

The sell-off continued over the weekend in the futures markets.  And it’s likely the markets will open with continued negative sentiment.  So what now?

Looking forward, what are the key levels to pay attention to?   First, look for the 2715/2700 level for support on the S&P500.  That is where the 50-day moving average is.  And 2700 is a nice round number.  Below that, 2632 and 2585.

The 2632 level will fluctuate this week as it’s the 100-day moving price average.  The 2585 level is the one to watch.  This is official correction territory for the S&P500.  It also seems to be the area traders may be keying in on after the big January move higher.

Make no mistake, the technical damage on Friday was real.  But this still doesn’t have the underpinnings of a 2008-style event.  Caution is warranted though.  While all three macro indicators remain long, a look under the hood in the BigFoot systems reveals a change in trading signal for all three major indexes from buy to wait.  The database also fell below 70% long for the first time in months (maybe years), falling down to 68.58% long.  This is confirmation that short-term volatility is real – and enough to move the needle in the trading systems.

This week will be important as far as price action is concerned.  Watch for follow-through and an increase in negative sentiment.  If buyers don’t show up soon, we may see the first official 10%-correction we’ve seen in nearly two years.

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 That Sleigh Bells I Hear?

Black Friday is in the books, and Cyber Monday is here.  So far, the online numbers look pretty good.  And the abbreviated Thanksgiving trading week finished pretty decent as well.  So…  you better watch out, you better not cry, you better not pout, I’m telling you why…  there’s a good chance Santa Claus is coming to town.  Because this market has been in rally mode all year.  Why would it stop now?

A December climb in the market is traditionally known as a Santa Claus Rally.   And, if technical market behavior is any indicator, this market could surprise everyone this year.  2600 is in the books.  Can we take out the 2625 level?  Or hit the 2632 extreme level projected back in January?

The answer to both questions is yes – it’s possible.  And at this point, it’s a move of less than 1% to get there to 2625.  It will not surprise me if both levels get taken out in the coming weeks.  The bigger question is, can markets hold these levels?  Or will we see a pull-back to somewhere below 2600 by year-end?

That story is yet to unfold.  For now, keep those Santa Rally Caps on.  Key numbers are still the round ones — 2575 for support, 2600 for the pivot, and 2625 for resistance.  Look for 2606 to be a funny area as well — above the major 2600 level, but lately it seems many traders (or perhaps software programs) give just a little extra wiggle room in their trading objectives — so the markets may trade above the ‘big’ obvious numbers, only to meet resistance just slightly above or below those key levels.  You can also look for support at 2591 and 2686 — for the same reasons.

Volatility may increase slightly in the coming weeks as mutual fund managers begin window dressing and harvesting gains or losses before the end of the year.  This shouldn’t change the support/resistance much – just the intra-day swings.

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.