Posts

Santa Said Risk On (But for How Long?)

It’s been a fantastic rally for stocks over the past couple months as Santa Claus was coming to town. Now is where things get interesting.

As discussed, last week was really the last full ‘trading’ week of the year. With the Christmas and New Year’s Holidays happening mid-week you can count on lower trading volume for the rest of the year. And more than likely, the participation will be light (don’t want to mess up those bonuses for portfolio managers).

To top it off, news on the ‘trade war’ is positive this morning as China says they’ll reduce or eliminate tariffs on a number of goods in the new year in anticipation of an inked trade deal in the near future.

This news has been greeted with optimism in the futures markets as the major indexes appear poised to push to even higher all-time highs. What a (calendar) year for the stock markets! (I’m sure we’ll get a pile of statistics to chew on in the coming days and weeks – best market since 2013, etc etc).

But before you pop the cork and celebrate, a word of foreshadowing: on the technical front, this market is way over-bought (at least by metrics we typically track). And on top of that, the multiple on earnings has crept up pretty high.

Fortunately, word on the street is still pretty skeptical. But we’re seeing Wall Street pundits raising estimates and there is a lot of chatter from the retail investor about how great things are (even if they’re still nervous about the economy going into an election year).

It’s precisely these times one should be careful about getting sucked into emotional euphoria land.

Warren Buffet famously said you should be fearful when people are greedy, and greedy when people are fearful.

Well, this is a tricky spot. The major indexes have had huge moves in 2019. The temptation to chase performance and pile into big winners is like a Siren’s call for many. And the technical set-up is concerning as we’ve seen this market not only gap higher late last week, but it’s poised to do so again at today’s open.

We’re at two standard deviations above the 21-day trading average for the SPX. Based on the futures markets, we’ll go even higher that that this morning.

It’s no guarantee that the markets pull-back from here just because we’re over-bought… or in a shortened trading week… or because we’ve had likely two price-gaps higher in the last two trading days… or because we’ve had huge calendar-year profits for the year… or because traders want to start positioning for Q1-2020… or a host of other reasons…

But you get the idea… markets have a lot of reasons they could pull-back from here. If they don’t, it may be time to start revisiting Warren Buffet’s old saying again. Because if there’s no fear in this market, maybe there should be.

Then again, for you BigFoot users, this is exactly why we have a process instead of just using our gut. Sure, there are no guarantees in the world. But having a systematic approach to analysis and following a set of rules and rationales leads to more consistent behavior. That means fewer variables, and higher statistical predictability. Or, said another way, it helps reduce the potential for human errors by quarantining some of the emotions that often lead to poor decisions. So tell a friend – or if you’ve stumbled upon this blog for some other reason, give us a ping. We’d love to walk you through the system and show you how to put the power or both artificial intelligence and neural networking to work in your investment process.

Looking pretty over-bought here
There may be further to go, but the air is getting pretty thin up here

As a head’s up, next week’s blog will be pretty minimal. As is the norm for this time of year, I will spend some time pulling together data and doing annual projections for 2020. I will probably do a brief year-in-review snapshot as well. It’s pretty easy though – markets exceeded my expectations because earnings exceeded expectations. It wasn’t a major miss (I had a high for the year at 23% return – we’re currently around 27% on the SPX), but I was surprised to the up-side. Now that I think about it though, should I even say this? Don’t want to jinx things in the last few trading days of the year…

Thanks for continuing the read these musings. I hope you have a wonderful holiday seasons, a Merry Christmas from my household, and a Happy New Year as we step into 2020. May you as blessed as I have been…

IMPORTANT DISCLOSURE INFORMATION

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

Trade Winds Improving

Last week markets got a pop on ‘less bad’ trade news as China indicated a partial trade agreement may be on the table. This could mean additional planned tariffs would be suspended.

Markets viewed this as a positive and finished last week with a strong push higher.

While the news is good, the technical set-up for this week may have a quick down-draft to fill in a price gap for the SPX. There is technical support around 2930 or so — right at the 100-day moving average (the 50-dma is only 5 points higher).

Interestingly enough, the market is neither over-bought nor over-sold. It’s pretty much right in the middle of its 21-day trading range. So positive news from here could lead to a push higher (especially if the small price gap created last Friday gets filled quickly this week).

This is the first technical sign that the markets could be setting up for a break-out to the up side in a while. There is still a chance the sideways pattern could simply persist, but the price reversal last week was a good sign the 2900 is significant support for the SPX.

For this week, look for a quick dip down, followed by a potential surge to the up-side. Breaching 3000 on the SPX is possible this week, although it is unlikely the all-time highs will be reached. It would take a more definitive deal with China to spark that kind of move.

IMPORTANT DISCLOSURE INFORMATION

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

Reprieve… for now

It seems the markets are pleased with the aversion of a trade war with Mexico. Last week the SPX saw a near-4-percent recovery following the red on Monday. From Tuesday on, it was all green. And, judging from the futures markets, that trend is set to continue into the start of the week.

Does this mean we’re out of the woods and ready to print new all-time highs in the major indexes? Definitely not.

The key number for the SPX this week is 2892. A close above this level would be a sign markets may re-test the highs of the year. A failure here could be equally concerning though, as some technicians will quickly point out it could represent a triple top for the index. This, typically, is viewed as a negative signal for the markets.

The end of the week is the bigger tell. An intra-week close above 2892 is by no means an assurance this market is out of the Woods. In fact, a move above this level, followed by a pull-back and close below the 50-day moving average for the week could be viewed as a re-test and failure after the last pull-back.

Here’s the story by the pictures:

The SPX range is highly unpredictable this week. Will the recovery continue or stall out at near 2892 levels?
Key numbers for the week (with key resistance at 2892)
S&P500 sector proxies
Market Capitalization Proxies
Updated 2019 Projection Chart

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.

Technical Warning Signs Continue to Grow

With the May pull-back in the markets, the technical landscape for the market has really deteriorated. Momentum is clearly to the downside, and stocks across most sectors and market caps have been falling. There have been very few safe ports in the storm so far.

One of the dangers of aggressive bear markets is the increase in correlation across investment categories. When massive systemic risk shows up (and markets are declining on a broad basis), diversification is a less effective risk management tool. This is a large part of the reason behind the BigFoot Marco Indicators – to give some tools to manage systemic risk.

So far, the BigFoot Macros have been hanging in there (translation: they’re still long). Note though, these indicators are lagging in nature. The technical landscape can still offer some perspective on the markets.

A quick look at both the market cap and sector proxies for the markets shows a lot of negative momentum (note the background color of the charts below – the red background indicates a negative pricing trend for the rolling 3-month trading period).

Market Capitalization Proxies
S&P500 Sector Proxies

The chart below shows key areas of potential support and resistance over the next few weeks. The downside momentum is significant, with the 2679/2661/2609 areas looking like support areas worth keeping an eye on.

For the week, trying to predict where this thing is headed is a challenge. The negative momentum is significant. However, the markets have been triggered by trade war concerns. So any meaningful positive developments on these fronts could drive a sharp reversal.

The ‘black swan’ probability is pretty high right now.

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.

Tough to Handicap

The technical landscape is very ambiguous this week. Not only is it a short week, but we’re already at ‘over sold’ levels by many measures.

Typically you’d look for a market bounce in over-sold conditions. If so, the 2874 level (50-day-moving-average) would be the place to look. However, given the ongoing trade issues with China, the markets could be going through a more material overhaul of future profit expectations. If this is the case, there could be more pain before markets find traction.

The 2800 level is likely the key for the week. So far, this support level has managed to hold up. As long as the market can close above this level it’s a good sign. However, a close below this level — and, more significantly, a close at the end of the week/month below this level — would likely be greeted by additional downside.

The fact this is a holiday-shortened week falling at the end of the month may make for some interesting movement on volume.

The challenge looking forward is figuring out what could drive growth from here. With the trade war potentially handicapping future profits for a large portion of the markets, the stage is set for a sideways grind. The stage does not seem set for a 50% decline (at least not yet), but it does not seem set for a big push higher from these levels either.

Perhaps we will look back and wish we had ‘sold in May and went away.’ Then again, the total market decline has only been about 4% or so for the month. The bigger concern is the bleed in ‘long’ positions in the BigFoot database. We’ve gone from over 80% long signals to now below 60% long signals. This may simply be a reflection of the spike in volatility. Then again, it could be a sign of something more.

Frankly, this trade war with China is on the verge of becoming a very real issue. This kind of event can lead to structural changes in our economy. Those changes are yet unknown. But we can likely expect the technical aspects of the market will shoot first and ask questions later. Stay tuned…

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 Trade Wars Begin

While it sounds like an episode from Star Wars, this may not be fantasy. The trade talks between the US and China appear to be breaking down. At this point, both sides are talking new tariffs. And the speculation about just how quickly the world will come to an end has begun.

Putting political commentary aside, what does this mean for investors?

In a word: it’s bad.

Futures are getting hammered as markets appear poised to drop about 2% across the board. The 10-year treasury yield has also dropped as people seek safe-haven assets. Even the BigFoot database has dropped from over 82% long to around 75% long. So this is becoming more than just a squawking media cycle.

Support may be tough to find in this market. There’s been such a steady climb the last month that there are very few ‘stops’ on the way back down. The first noteworthy area the markets reversed is the intra-day low set back on March 27th at 2787.

Here are key support levels from there: 200-day moving average is at 2776. 100-day moving average is at 2749. And then there’s the March 8th low of 2722.

All of these levels imply a drop of over 3% for the week.

The only silver lining to this situation is that it could end. Should a deal be reached, markets would now view this as a VERY positive event that could push things to all-time highs in short order. Otherwise, the upward momentum is shot. We’re now looking at a sideways pattern where the markets have to find their footing, re-test a few times, and see if they can grind higher.

So yes, this news is damaging. Unless something happens today that gives the market a hard reversal — something that has this market finishing in the green today (which, frankly, is hard to rationalize given the current data) — there’s likely more damage to come.

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 Tariff Tantrum

Markets are bracing for a drop after the weekend announcement that tariffs on Chinese goods are not only back on the table but bigger than before.

What this translates to for the markets is uncertainty. For the past couple of months the China trade negotiations were largely an after-thought. This brings things back to the forefront.

Trying to understand (or predict) how China will respond is a study in both culture, gamesmanship, and so much more. And frankly, it’s beyond the scope of this blogger. Instead, let’s focus on what the market may look at.

Futures are set to open significantly lower. The SPX appears ready to test the 2900 support level. This is a fairly significant emotional line in the sand for traders. It’s also a big round number. But it’s well above the 50-day moving average of 2852.

A drop below the 50-day moving average this week would be psychologically damaging – especially when many folks begin to get suspicious about the “sell in May and go away” adage.

The 50-day moving average is about 3.7% lower than Friday’s close. A one-week drop of this magnitude would likely throw the markets into a sideways pattern while more news gets sorted out. It doesn’t mean it’s time to brace for a bear market. But we could be in for several weeks of increased volatility and sideways moves as trade negotiations move front-and-center for a while.

Despite the fact that the tariffs will hurt China significantly, there’s no guarantee they will respond as hoped. So this could drag on for a while. And it could have a real impact on GDP and growth for the S&P500 companies. A roll-back to the beginning of 2Q19 is easily possible. That would put the SPX back between 2786 and 2852. If China responds with tariffs of their own, it could push things down even further (although the economic impact of these tariffs would likely be less damaging to the US as we import more than we export from China).

It is way to early to suggest the US bull market is dead because of this. Quite the contrary, economic data remains robust. So while this is a bump in the road — and certainly it increased uncertainty — and likely volatility with it — it’s entirely possible the markets will pull back a bit, find their footing, and continue forward. Consider the fact there are still few more attractive options for yield than the US stock market (even with these new tariffs on Chinese goods).

If you think about all the options available to you — be they super-low-interest-rate fixed-income products, foreign equities, real estate. or commodities — there are still few options that look more attractive than US equities when comparing the overall risk-to-reward opportunities. This should keep a bid under the US market (or at least reduce the likelihood of a massive wave of selling).

Whatever the case, we should have more clarity as the week rolls on. For now, there’s a bunch of speculation and guessing as the markets try to sort this stuff out. As the data becomes clear, we’ll get a better understanding of where things are headed.

For the week, look at the 2900/2912 level for the first area of SPX support. After that, we may fall all the way to the 50-day moving average at 2852.

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.

New Year’s Shift

Happy New Year!

This is the first full week of trading for the year – so back to work!

Markets are trying to shake off the December 2018 hangover. Last week’s first trading week sure made it interesting. The big news was the blowout jobs report last Friday coupled with the more Dovish tones from the Fed. This cocktail was the recipe for a huge rally on Friday.

Has this changed anything? Only the short-term outlook. It seems everyone had written off the economy for dead in December. With the Fed tightening, it was only a matter of time before the recession word came into play. But then the jobs numbers came out.

Realistically, the problems are unchanged from last year. The difference is outlook on the Fed. If the money supply isn’t going to be choked off even more aggressively (because, remember, they’re still reducing their balance sheet and no longer buying bonds), perhaps the economy can continue to grow.

Plus the American public is about to get a very real look at whether or not they will experience personal tax savings under this new plan. It’s been a popular target because of growing deficits at the Federal level, but folks are about to get a direct taste of ‘what’s in it for me.’

Some good news on China talks, the Federal government starts operating again (this is less of a concern to the market than the media would have you believe), and some decent earnings numbers and guidance in Q1 and this market could be back on track in short order.

The Fed shifts to more hawkish, trade talks with China drag on with no change, or we start to see numbers indicating an actual economic slowdown, and this market could head south all over again.

So for now, we wait a couple weeks and see how the data shapes up.

If you want to be a stickler, the SPX actually hit a 20% drop from peak-to-trough during December. So one could argue we’ve had the shortest bear market we’ve ever seen. Strangely, no one seems to be saying that. The talking heads keep talking about when the bull will die… so apparently an intra-day swing, or a one-day blip, isn’t how they want to measure things.

For the week, it look for 2408 support, and really no upside resistance to speak of, so 2575/2600. If this seems like a comically large range for a technical call… it is. But that’s what happens when you’ve had the kind of volatility that wrapped up last year. Things get blown-out, over-sold, and the algo’s get a little wild. Until volatility subsides (if), this may be typical for a while.

Cheers and fingers crossed for a great 2019!

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.

Searching for Support

After another ugly week of down-side, reports all over the internet insist the futures are indicating a drop for the US stock markets today. Will it happen? Maybe.

Over the weekend stocks dropped in Europe, China, Japan and the like. US Futures were also down about 1% or so from Friday’s close. But futures have climbed back to about even overnight. This puts the markets in an interesting spot.

The 2630ish level was a big one as it markets the October and November low points for the SPX. The index has now visited this level 4 times. The prior three times markets found support and rallied. The fourth time was last Friday – and the markets closed at this level.

So, does the market rally from this point? Trade sideways? Or is there more downside?

From a technical perspective, it’s difficult to call. The short-term signal is for a bounce higher from here. Markets appear over-sold, and the news driving things down appears to be more about rumors than it does about economic data. If one wrong utterance about China and trade can take the markets down 100 SPX points, one has to wonder what a right utterance could do.

Longer term, the technical picture is concerning. It’s a tale of two big-picture events. Does the bull market regroup can go higher, or are we in for a more significant big-picture pull back (aka bear market)? And IF it were a bear, how far does it drop from here? On one hand, there’s a figure of about 27% decline. On the other, more than 40%.

The thing is, the economic data doesn’t support a 40% pull-back. It just doesn’t tell this story. Even if you can squiggle some lines on charts and talk about how this could happen, what economic reality must come to pass in order to generate such a mess?

Answer: who knows? We can all speculate. Perhaps it’s the failure of a major state pension plan. Perhaps it’s a full-blown trade war with China. Perhaps it’s a nuclear missile launch from North Korea. Whatever the black swan event, it’s not ‘known’ by the markets. So it’s tough to call it priced in.

At this point, the markets have priced in a lot of bad news. Multiples have fallen. Many stocks are in bear market territory. And, in many cases, if it weren’t for the cap-weighted nature of the indexes, you’d see that many of the non-mega-cap stocks have already gone through bear-like corrections.

This week should be interesting. If 2630 or so holds, it’s a good sign. If not, there’s little indication where the next level of support is. We will likely re-visit the February lows for the market. For the SPX, that’s another 100 points of downside from here (or just under 4%).

Get your Santa rally caps on. This market may need it.

IMPORTANT DISCLOSURE INFORMATION

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

Market Macro Fails

For the first time since 2016 the BigFoot Market Macro Signal has gone negative. And we’re already set up for a potential whipsaw, as futures are pointing to a higher open that would put the SPX above the threshhold to flip the Macro back into buy territory.

Over the weekend the big announcement was a temporary truce between the US and China. The details are a little fuzzy, but basically, no new tariffs, and some rollbacks on a few – at least for the next 90 days.

This doesn’t mean the trade war is over. But it is positive progress. So we should be good to go, right?

Woah, woah… slow your roll. Just because we have a deferral of action doesn’t mean everything is okay. And technically, things are still unclear. In fact, if the futures pop higher today as expected, there’s good chance a pricing gap will materialize.

We’ve spoken many times on conference calls about how the markets abhor pricing gaps. And in this case, unless the market managed to push above 2825 or so, it’s likely we’ll dip back down to 2760 some time this week first to fill that price gap.

From a Macro perspective, we just want to see the markets finish the year above 2754. This should be enough to flip the signal back to a buy. Which is interesting, because last Friday’s close would have done it. But, alas, that’s not how the signal works.

We’re in a bit of technical no man’s land. There markets have had a double-dip this year, but the fundamental news is pretty optimistic. Jay Powell and the Fed gave the market the gift it was looking for (a more dovish stance), and Trump has softened on the trade war. Pricing multiples have fallen to essentially their low-point for the year. So there’s room for the markets to go up, but the mixed pricing signals also mean there’s room for the markets to dip a bit yet.

Given we’re already into December, and most of the earnings for the year area already over, it’s difficult to see a rationale for why the markets should push to all-time highs before the end of the year. In fact, given the mixed Macro signal from the software – and the anemic 40% long positions ratio – it’s difficult to see much more than a sideways market from here – even with the ‘big news’ about the deferral of the trade war with China.

Make no mistake, Monday is shaping up to a be a positive day for the markets, with the SPX likely to push above 2800 intra-day. But Monday may not be enough to shake off the bear-market chatter just yet… Tis the season for miracles, sure. And perhaps Santa is bringing more than coal for the year. But it doesn’t look like yuge breakout to finish the year at this point.

Interestingly enough, the ‘bear market’ may have already silently happened in the form of asset rotation. Many of the high-flying tech names have already had over 20% corrections in pricing. We just haven’t seen the entire market dip simultaneously. A move like that may be reserved for our next recessionary environment. When that actually occurs is still a subject of much debate.

For the week – enjoy the reprieve. Just don’t let a few days in the market head-fake you into thinking everything is all clear. Plenty of up days happen in bear markets. Better to keep your cool and play this one by the numbers IMO.

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.