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A Trend May Be in Danger

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

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

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

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

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

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

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

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

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

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

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

Does this imply a major correction in the markets?

Not necessarily.

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

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

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

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

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

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

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

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

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

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

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

IMPORTANT DISCLOSURE INFORMATION

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

Blip?

Markets have been on a wild ride for the past two weeks. The S&P 500 fell from its all-time highs down to its 50-day moving average, only to rally back to all-time highs again to close out last week.

At this point, the momentum is still intact. So the trend continues: higher.

As with all things in the market, every up-trend ends in a downturn (duh). The question is when?

The longer-term idea that price multiples are unsustainable at these levels still seems to make sense. Recall the 2021 projections called for markets to go higher – for the SPX to rally towards the 4000 level – then for a potentially more significant pull-back from these levels.

Judging from the way markets have been moving, this may be a less organized trend that would make the pull-back harder to spot. If stocks do not uniformly correct across the board, it may not even be recognizable.

Instead, what we could see is a type of sector rotation where money moves out of some stocks, prices correct, and then begin to recover – all on a stock-by-stock basis rather than happening across the entire market simultaneously.

Some are suggesting this may have already happened in the last two weeks, as many stocks have pulled back at least 10% from their all-time highs in the past few weeks.

Of course, it’s possible we could still see a more orchestrated correction. Stimulus out of DC is still largely assumed to be on the table. But the form of stimulus is still up for debate. Whatever the case, it seems the plan is to monetize debt. At some point, one would expect consequences to come with this plan (if Bitcoin is any indicator at all… which it may or may not be).

The larger challenge of this market is its ability to gaslight analysts. In many ways, this is reminiscent of 1999. For those without the gray hair earned riding through said era, this was the period of the ‘new economy,’ where dot-com’s no longer needed to make money; they just needed to attract customers.

During the dot-com era, traditional analysis sort of flew out the window. Stocks went up regardless of the financial health of companies. New investors were jumping in with etrade and other online brokerages. Everyone was going to become a stock millionaire.

Today, there are new app-based online brokerages, free trading, and everyone is going to become a stock millionaire. Companies may make money, but the multiples are so stratospheric it would take eons to get paid back.

What’s different? This time the government is printing money. Lot’s of it.

In fact, a quick google search revealed US GDP at $9.6 trillion in 1999 (2020 numbers aren’t official yet, but it’s over $21 trillion). If we look at the amount of stimulus being conjured up, we’re looking to print more than half of 1999’s total economy.

Let that sink in.

The kind of money being created is so mind-boggling it doesn’t compute for regular people. It may as well be a zillion-kerbillion. Because we don’t have any sense of how much money it is.

Therein lies the problem. When money can go to a zillion-kerbillion, you see assets like Bitcoin become actual conversation pieces. And you see assets become mega-inflated. The question is when?

Inflation is sneaking in. We see it in housing, where people can access the capital. If the next stimulus package includes a minimum wage increase, we will see it start to spread to more areas of the economy.

Stocks, historically, have been a leading indicator of economic health. However, in a world with near-zero savings rates, stocks become one of the only alternatives to store value. So demand is sort of conjured up by circumstances.

However, this market may be out pretty for over those skis. At some point, you tumble.

If we see inflation pick up, and rates start to rise, demand for stocks could fall. And those stratospheric multiples could start to look pretty unnatural.

Judging from the pace of movement in certain assets – the sort-of frenzied FOMO attitude of many new stock buyers – and the actions of both DC and the Fed, the idea that markets could pull-back later this year is still very much on the table.

But for now, looking week-to-week, the looks like the party is still raging.

The trend for the S&P 500 suggests the last two weeks were a mini-correction, and new highs are on the way. This week looks like a test of the 3950 levels. We’ll see…

IMPORTANT DISCLOSURE INFORMATION

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

The Trend is Your Friend

It’s tempting to over-analyze the markets. Every day another headline calls for attention. But the truth is, the media generates a lot of distractions at times. In the constant quest to attract eyeballs, that’s what the news/editorial cycle does. But behind the scenes, the markets are often times working on their own story.

The story of the current market isn’t a new one. It’s just colored by the news cycle. Presidents coming and going; covid; taxes; trade deficits. The list goes on. And certainly, the list is relevant. But the day-to-day, moment-to-moment stuff can lead to looking for more than perhaps there is.

The current story for the market has been going on so long it’s almost hard to accept. There’s just no other place to put money where you would expect to outpace inflation, so money moves into stocks. This demand has buoyed prices for years now, aided by the fact the Fed and other market forces have kept interest rates so low.

The question is, will rates continue to stay low and for how long?

The temptation is to believe rates will revert to a mean and begin to shift higher. This is certainly possible, but don’t get too far out over your skis on this one. True enough, the yield on the 10-year treasure has increased dramatically over the past few months when measured as a percentage. What remains to be seen is if this is the beginning of a long-term trend of rate increases, or a short-term spike in rates in response to the anticipation of a shift back toward a more global-focused Washington?

The reality is, it’s too early to call a trend shift. The bigger theme of this market has been going on, arguably, since 2009 following the financial crisis. It’s resulted in a much more central bank influenced market than perhaps many would care to admit.

Those central banks – the Fed chief among them – haven’t taken away the punch bowl yet. So while rates have drifted higher, it’s pretty early in this game. Rather than try to handicap the odds that rates will start to radically climb (something even the smart money in bonds struggles to do), let’s simply look at what we have: a trend that is still intact until proven otherwise.

So what is the trend? Simple, rates are beginning to climb, but stocks are still more attractive as a hedge against inflation (for now). However, stocks, at least by PE valuation, look expensive. So which is it? Are stocks too expensive, or are stocks attractive?

The answer may simple be yes.

Many stocks are expensive, but not all stocks are as expensive. So, if the economy continues to normalize out of covid-disruption, it would make sense the assets would rotate out of the more expensive ‘safe’ stocks into the slightly riskier but more affordable ‘risk’ stocks that have more attractive valuations.

In short, the market seems to be tipping its hat toward a re-open trade.

Granted, it’s early to call this. But the trend is your friend. And so far, the trend in equities has not failed. So this appears the most reasonable explanation to connect the technical and fundamental picture… for now.

For the week, futures are looking like a positive open. And, we have a holiday-shortened week. This typically means a little more volatility. But, superstition suggests the week will move in the direction of the open. If so, look for a positive bias this week, with a trend that will potentially re-test the all-time highs on the S&P 500. Support is at the 3750/3725 levels. Resistance should be as high as 3855/3871.

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.

A Look Ahead at 2021

The challenge of predicting the future is you have to wait to find out if you’re right.

As much as folks may want to claim they can predict the future – especially around the stock markets – the reality is, you can’t; because investors are fickle, and supply and demand are funny things.

Underneath all the layers of sophistication – the models – the math – the rationalization – are humans and machines. These market participants are crunching all this data, trying to get to one basic decision: should I own this investment or not? Buy, hold, or sell?

It’s a simple explanation for how markets can get irrational – because people can get irrational.

So looking into the future, after 2020 gave us so many new variables to consider — so many things that can shift both the supply and demand side of the equation — is really more of a glorified guess than much else.

Yet here we are, doing our glorified guessing.

So, what concerns are on the table?

Biggies: a mess of a political climate; monetary policy and the repercussions of creating new dollars; fiscal policy and the creation of new taxes or legislation; foreign policy and geopolitical risk; environmental policy and its impact on regulation; the list goes on.

So how do we make sense of it all?

Here’s an old adage that’s appeared on this blog: keep doing what you’re doing until the markets tell you to change. It’s a rather simple way of saying ‘don’t fight the trend.’

So, until the trend shows evidence of changing, what then?

Short-term (as in, for the next week or two… or maybe longer), the markets are declining in volatility and moving higher. Largely this appears to be in anticipation of additional government stimulus. The PPP program has a second wave, and it appears likely there will be more direct stimulus (essentially beta testing universal basic income – a subject for another day).

The push higher, in the short-term, has followed a trend line the past several weeks evident in the graph below. If trend continues, expect the SPX to finish the week somewhere between 3827 and 3851.


Looking a little deeper under the hood, the chart below shows the S&P 500 as over-bought. As discussed in the past, this is a condition, but not necessarily a short-term indicator of a pull-back in prices.

The temptation is to assume markets want to pull back, or revert to the mean. Longer-term, this may be the case. But often times markets will find a sort of short-term consensus that leads to a push higher for prices. When this happens, you can see markets in over-bought conditions for a while. In fact, sometimes markets even break-out higher. So don’t read too much into this. It just means the up-trend is currently in place. Once it breaks, we likely see a spike in volatility and downward moves in prices. Until then, we look for confirming indicators and other signals to help validate where the herd is headed.

Finally, looking ahead to the rest of 2021…

This is a very challenging year to project. Based on the current Price-to-Earnings multiple and projected earnings, the S&P 500 projects out to 5200. That’s a gain of about 40 percent.

Frankly, this seems extraordinarily unlikely given the overall economic uncertainty of the day.

Taking a more subdued view of the future, we have a year-end target for the S&P 500 between 4260 and 4350.

There is some math behind these numbers, and a lot of trend analysis. If you’d like a deeper dive into this, watch last week’s forum call under the technical section at about 35 or 40 minutes into the call.

The summary is this: if you sort of normalize data and take some of the Covid extremes out of the mix, the trend was still pretty strong. That trend should continue in the near-term because of additional stimulus. But, with the political regime change and the blue wave in Washington, it’s more likely we see a return of Obama-era policy and additional regulations. This should create some growth headwinds for earnings, which in turn will slow down the rate of growth.

If these projections are correct, the first quarter of 2021 should be relatively strong, but it’s likely the markets will have to digest some policy change – and possible inflation – that will likely derail the current up-trend. Hence the low probability of a 5200 finish for the SPX.

Another trend to watch for 2021 is asset rotation. Large tech has been a huge beneficiary of the Covid trend. This sector of the market has driven a large part of the major index returns.

If money begins to shift from less large-tech over-weight into other sectors of the markets, the major indexes could experience some headwinds. However, other areas of the market – such as small and mid-caps, value players, and international holdings — may benefit from asset rotation.

So these are major themes we’re watching this year:

Will the Fed begin to increase rates in the latter half of the year in response to rising inflation? Will a big-tech asset rotation create opportunities in other areas of the market? Will emerging markets benefit from a weakening dollar as rates rise? Will commercial real estate recover after covid, or has the workplace permanently changed to a more work-at-home model?

Oh, and don’t worry. There will be more questions. We’re only a week into 2021 and look what we’ve already dealt with. And you thought 2020 was an adventure…

If you’re interested in learning more about this or other BigFoot Investments resources or would like to join us on a complimentary webinar, please contact us at
customerservice@bigfootinvestments.com

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.

Ribbon and Bows

No full trading trading days left this year. For the week, the markets are closed on Friday, and trading is shortened on Thursday. The same will be true the following week. So this blog will be similarly short…

During short trade weeks – especially around major holidays – it’s not uncommon to see trading volume drop and volatility climb. Historically this could be explained by fewer traders physically being on the trading floor. Today so many trades are placed by computers and algorithms this may not be as much of a “thing” as it used to be. Nevertheless, with mechanically fewer days left to trade, it’s likely the markets will not materially rise or fall from here.

You’d think with a stimulus bill muddling through Washington the markets would be more excited. But no, futures are negative for the open on Monday. It seems the concern is now about a different mutation of Covid spreading across the pond. Will this render the vaccine ineffective? (If so, things could get ‘interesting.’) It’s quite early to tell. However, the ‘what if game’ is enough to make the markets marginally worried at the open today.

For this week, just look back to last week. Odds are very high we’ll trade between the highs and lows — so a low of 3645 and a high of 3725. Should a bid emerge resistance would be about 3760.

So there’s not a ton to talk about. Yes, DC got some stimulus passed. There’s not a ton that appears to be ending up directly in the hands of consumers. So there are still lots of questions to be answered. As clarity emerges perhaps the markets will become more optimistic. For now, it looks like markets will bounce around in a similar range to the last three trading weeks or so.

In short: the Santa Claus Rally may be about over…

Hurray… next we can talk about the January Effect! (So many superstitions, so little time)

As a random aside: today is the shortest day of 2020 in the northern hemisphere… winter solstice. Just a bit of reminder trivia there, too.

For bragging rights… the projections created on 1/9/2020… which have been unaltered for the year (despite Covid)… were for the S&P 500 to close at 3577, with an extreme price target of 3770. (It’s looking like those projections faired pretty well this year.)

And that’s it… we’ll keep it short because it’s a holiday week for this author too.

Wishing you a wonderful Holiday season, Happy New Year, and from my home, a very Merry Christmas. Cheers!

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.

Begin Operation Wrap-Up

With the remaining trading days of the year dwindling into single digits this week, expect this week to be a push for the end of the year. It’s basically the last full week of trading we’ll have. After this, volumes typically start to drop… not to say the markets won’t move higher or lower on low volume (they absolutely DO in many cases), but it is to suggest much of the news for the year — including gains distributions — will be dialed. Markets will be shifting their gaze to 2021.

As markets look ahead, you can basically roll back about a week, read the prior BigFoot Blog, and get a sense of what’s going on. Little has changed. Last week some momentum bled off, but the larger up-trend remained intact.

For this week, the question is whether we’re looking at a sideways range or a break-out toward new highs. The futures movement indicates a move to the higher side of things, with the S&P 500 still eyeballing the 3800 level. The technicals are a little more benign, caught between a sideways trend and an up-trend.

Given last week’s meh performance, the SPX may be shooting for closer to 3757 for the week (a move higher, but at the lower end of the current trend). Rarely has this market followed trend this precisely. And there are still two shortened trading weeks to follow where any little bit of good news surrounding stimulus out of DC could cause the markets to pop.

Keep in mind, it’s the short weeks that exaggerate market behaviors sometimes. The theme of 2020 seems to be a big more negative (no shock there), so there’s about a 50/50 shot (total technical swag guess on the percentages here) that the markets publish their highs for the year this week, and we move sideways from there.

Interestingly enough, the data last week barely moved. The BigFoot Database percent-long, along with much of the other technical indicators, was nearly unchanged. About the only thing worth noting is we’re less over-bought.

Given the lack of change, taking a step back and looking at the larger theme implies the market is still seeking a higher move. Since the negative of last week was not a powerful decline, we may see more of a pop higher this week… If futures are an indication, Monday should open strong. We’ll see if Washington provides any additional excitement 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.

S&P 500 projections for the week of 12-8-2020

Santa Still on Approach

With the S&P 500 still shooting for a 3800+ print in 2020, the Santa Claus Rally looks like it’s still on.

It may sound crazy, but volatility could continue to decline in the near term as markets slowly grind higher into record territory. There simply isn’t a significant amount of news between now and the end of the year that looks like it will derail this thing. And mean reversion is likely not reason enough on its own to lead to much more than some intra-week down trading days during a broader trend higher.

(Did that make sense? Basically, the market seems to want to go higher, but on any given day some trading could lead to a negative print here or there. It just doesn’t look like much more than that: trading. The secular up-trend still looks strong.)

This is not to say black swans don’t exist. And this is not to suggest the markets could not find a reason to get fickle and decline. (They could and certainly have before.) It’s simply looking at the data, the trends, and trying to gauge the amount of uncertainty the markets are trying to contend with.

The trick is, most of the contingencies looks like up-side surprises. With much of the country still quite locked down, the questions are more about whether or not additional stimulus is going to happen. Taxes and other policy changes are still taking a back seat for the rest of 2020. (But don’t you worry, we’ll get a chance to freak out about that stuff in Q1 of next year.)

So, at least for now, it appears most of the current negative news in the world is already priced in. That leaves more positive surprises than negative in the short term, hence the high probability the markets grind higher from here.

The number to watch on the S&P 500 continues to be 3800. The downside support area looks like 3644. If this level fails to hold, the 3600 level could be tested.

A close below 3600 for the week would likely end the rally for 2020 and set up a test of the 50-day moving average and a sideways trading range for the rest of the year. The odds of this occurring look relatively low at this time.

A look under the hood of the BigFoot Database shows the DJIA just got a new buy signal. This means the S&P 500, DJIA, and NASDAQ all have buy signals in the system. The database itself is almost 85% long, with almost 85% of those long positions having buy signals (the others are wait signals). In short, volatility is on the decline, and stocks have been on the rise. Unless something surprising happens, Santa Clause should still be coming to town!

The technical setup looks like the Santa Claus Rally should 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.

The Holidays Are Here (???)

Don’t look now but the 2020 market season is in the final innings. It’s Thanksgiving week and the unofficial start to the Holiday Season.

Will a Santa Claus Rally be in the cards to end 2020?

Well, the crystal ball is pretty dinged up this year, but the signals look positive.

Behind the scenes the BigFoot database has subtly regained a bunch of long positions. It now stands at over 79% long. All the major indexes are long, with only the DJIA showing a wait signal (which will probably flip to buy if the week ends on a positive note).

Signs point to a bet the economy is going to continue to reopen. It’s a risky bet. But the vaccine hopes seem to be outweighing the lock-down fears… for now.

Fear is probably the right acronym for 2020: Future Events Appear Real.

At the start of the pandemic, the concern was that death rates would skyrocket into the millions. Projections suggested as much as 4-to-5% of the population could die (these were the extreme projections of course). The numbers have been sensationalized ever since.

While Covid cases continue to rise, the improvement in medical capacity, therapeutics, and testing have shifted expectations mightily. The markets seem to be doing a good job of looking past some of the hype and digesting the numbers more pragmatically. (Markets themselves are dispassionate; market participants, on the other hand, can be quite opposite.)

Pragmatically, Covid case numbers were expected to rise as testing increased. Also, Covid figures were expected to play a roll in the election cycle. So some of the data was viewed as more sensational than other.

What the markets seem to care most about is whether or not the economy will stay open, whether or not the Fed is going to change course, and
whether or not there will be more stimulus… probably in that order.

So far, the only parts of the economy that are shutting down are the parts that never really re-opened that much… the west coast (where governments are instituting restrictions on gathering for the Holidays). The next few weeks will be telling to see how many people defy these orders.

The key metric seems to be less about Covid cases than hospitalizations. This was, of course, the original concern. It wasn’t going to be “if” you got covid, it was going to be ‘when.’ And policy was designed to “flatten the curve” to keep hospitals from being overwhelmed by covid caseloads.

As holidays undoubtedly lead to increased gatherings, keep an eye on hospital caseloads. That is the gauge most likely to indicate additional shut-downs.

For now, markets seem relatively convinced the caseloads will remain manageable and additional stimulus is on the way. And the markets seem to be looking higher as a result.

For this week, look for a positive trading trend. It’s a shortened week, with markets closed on Thursday for Thanksgiving, and then a half day on Friday. So volume will be lower. And typically market direction gets exaggerated somewhat on lower volume days.

It seems unlikely we’ll post new all-time highs after last week’s marks. But it does appear likely the markets will find a foothold this week and climb back into the upper end of last-week’s trading range. The SPX target for the week appears to be 3640.

It’s the following four weeks that could get exciting. If markets believe in the re-open trade, there could be more rebalancing from big tech into other areas of the markets. This could life indexes like the Russel 2000 in the remaining month. And the S&P 500 could yet surprise… the 3800 target is not off the table by year end.

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.

To Re-Open or Not

Here’s something I don’t get to write very often: even though the markets look over-bought here, they looked poised to take out their all-time-highs this week.

Sure enough, major indexes are over-bought – statistically, I mean. But statistics schmatistics. This is 2020, where anything goes.

A quick look at the chart below will show that prices are way at the top of the ‘cloud’ (a technical measure of the last 21 trading days and the standard deviation of the period’s trading range). In typical circumstances this would suggest prices are temporarily too high and due for a pull-back. But did we mention 2020?

At times a shift in news or sentiment will create a shift in the market. It is a dislocation, but it also marks a potential trend-shift in market prices. When this occurs, it’s not uncommon to see ‘typical’ market measurements temporarily thrown out the window. And that’s what appears to be the set-up.

Last week’s announcement of a Covid vaccine was greeted by a lot of optimism in the markets. Meanwhile, on the other hand, the number of reported Covid cases is at an all-time high. The beauty of the markets is, it’s willing to strip away much of the politics from the data. And the rise in cases doesn’t seem to matter that much to the success of the economy (as long as cases don’t outstrip hospital capacity).

What does seem to matter is whether or not economies are allowed to remain open. If Covid cases lead to enough hospitalizations, new lock-downs could occur (such as the new lockdowns announced in Oregon beginning Wednesday, shutting down dine-in restaurants and restricting stores to partial capacity).

New shutdowns would likely be greeted by market pull-backs. But so far, the shutdowns appear to be mainly a West Coast deep-blue phenomenon. We shall see if the concept gains traction or not. The announcement of yet another vaccine today (this time from Moderna) shows promise and suggests a silver lining may yet be found for this pandemic.

For the week, look for the markets to open higher on Monday and likely set all-time highs for both the S&P 500 and the DJIA. The SPX is now ‘hunting’ for the 3800 level, perhaps before year’s end. For this week, the target appears to be 3675. It will take a drop below last week’s low of 3511 to break this trend.

A couple of other details worth noting:

The SPX, being more tech-heavy these days, may underperform the DJIA for the remainder of the year. Likewise, the NASDAQ may underperform the other indexes over the same time period. There has been significant price improvement in the Russell 2000 indicating money is beginning to shift in the economy. The ‘stay at home’ trade has been a very powerful trend for 2020. However, Big Tech in many respects is over-bought. It would not at all be surprising to see money begin to shift out of big tech toward other areas of the economy if vaccines shift the trade from stay-at-home to back to the ‘old normal.’ If this shift happens, it would create a headwind for both the S&P 500 and the NASDAQ given their overweighting to tech.

As always, do your own homework. This is just a blog, not a recommendation. But if you’ve been reading this for a while, you know how that works.

Now please forward to a friend or share this somewhere. Apparently it helps search engines find us. So we’d sure appreciate if you could help us spread the word. Cheers!

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.

Vaccine Hopes, Holy Shift!

Update: Since posting this only a few minutes ago the futures have exploded on optimism over a vaccine. Technicals are out the window – this market is operating on raw emotion and hope at this point.

Original blog (prior to folks going bananas):

While the ink is not formally dry (because, technically, there are still lawsuits and other challenges) it appears the Biden/Harris regime will be taking the reigns in DC shortly. This means shakeout for the markets, at least technically speaking. The new regime brings potentially new fiscal policy, trade policy, and a host of other changes. All of this will begin to start pricing its way into expectations. The question is when? (And true, the efficient market folks will suggest it’s already priced in there. Of course, we don’t even know what it is yet.)

So far, markets appear to have gotten what they wanted. Most indicators suggested Biden would win, and the biggest point of optimism was around the idea of more market economic stimulus.

It’s pretty early to divine much from technicals… at least not yet. The weeks leading up to the election saw increased volatility and big jumps both up and down, so there’s not much to pull from trend-wise. Plus, as is political tradition, many of the promises made must now be walked back or nuanced in such a way as to suggest they’re still kept promises, even though they no longer resemble what was actually campaigned upon.

In the case of Biden’s tax policies, once can only hope they end up more moderate than the extremes that were hinted at to the more radical side of the progressive aisle. We shall see.

Looking at the futures, there’s yet another spike higher. This makes it likely for the S&P500 to challenge its all-time highs. So, for now, the theme simply appears to be optimism.

We’ll keep it simple this week. Below is the rough map of where things are headed — but it’s pretty loose. Not much to work with yet…

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.