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Correction Territory

Last week the SPX officially crossed into correction territory.  For those of you unclear what that means, it was a full 10% drop from the high-water mark set at the beginning of October.  This also send the major indexes into negative territory for their year-to-date return figures.  So it’s been a rough month.

Is there an end in sight?  Maybe.  But it’s always tricky catching a falling knife.

Currently, futures are pointing to a higher open this week.  But frankly, there’s little reason for markets to move significantly higher at this point given this week is election week.  Now next week on the other hand?

At this point there are no well defined support or resistance numbers, as the markets do not seem to be playing by technical levels at this point.  A different set of trading algo’s seems to be driving the day – that of underlying moving averages.  And there are lots of individual positions out there we negative moving price averages.

Post-election is an appropriate time to take stock of where we’re at and whether or not there’s much chance to salvage 2018.  For the time being, expect continued volatility.

On the plus side, at least the futures are indicating a higher open for today.  The question is, will this be another dead-cat bounce, or the beginning of a bottom to this market?  We shall 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.

Technical Outlook Still Unclear

While the long-term trend support seems to be in place (around the 200-day moving average), the intermediate-term numbers are all over the place.

This week is an interesting set-up.  The futures over the weekend are indicating a strong positive open for the week.  And over 1000 companies report earnings this week.  This, paired with very little Fed activity, should make for a decent backdrop for the markets.

Looking at the technical data, it’s a tale of two markets.  One market has the SPX running back to over 2825 this week.  The other has the SPX failing down to about 2675.  The volatility range looks like it could be quite high this week.  The bias, fortunately, appears to be positive.

The last several weeks have taken a lot of the wind out of the sales of this market.  While it doesn’t appear a full-blown bear is yet upon us, the BigFoot database has now fallen from the mid-70’s in terms of percent long, to low 50’s.  This is a meaningful shift.

On the one hand, money has been in motion, so some new opportunities should arise.  On the other hand, money has been in motion, and there’s clearly a shakeup.  Tech, in particular, has taken a hard hit in October.

Given that all three macro indicators remain positive, the backdrop for a major decline still hasn’t materialized yet.  Once the elections are over perhaps the markets can get a better idea which direction they’d like to commit.  For now, look for continued volatility, with a positive bias for the week.

IMPORTANT DISCLOSURE INFORMATION

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

Disconnect

Equity markets had a pretty solid pull-back last week.  The question is why?  Is there a fundamental shift in the economic data?  Profit taking?

It may have been a derivative of the ‘Trade War’ with China.  China has threatened to sell off $3B or so of US Treasuries.  Assuming this is credible, the front running of this decision could explain the move in the 10-year treasury.

While stocks and bonds are supposedly not highly correlated, that relationship is not always true.  Last week’s price action seemed the opposite certainly.  The question is, will this persist?

The technical action in the SPX is a bit early to call.  The next line in the sand to watch is the 2877 level — the 50-day moving average.  Beyond that and we get into more material pull-back areas closer to 2800.  The 2900-level provided little resistance last week as the SPX fell below this support area.

So, for now at least, we wait and watch.  It’s a tale of 2 levels.  Will the SPX retreat to the next major support level at 2800?  Or will it find footing near the 50-dma and begin the climb back toward 2900 and beyond?  Historically speaking, October, despite some key outliers, it usually a positive month for the markets (as is Q4 in general).  While the bias for the next day or two may be negative, we’ll see if this is just a trader’s blip, or something more significant.

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.

Does this Week Even Count?

Because the 4th of July holiday falls on a Wednesday this week — and the 4th-of-July-Eve holiday apparently justifies a half-day for the markets on Tuesday — you can expect a couple things this week:

  • Volume will likely be lower than average
  • Volatility may be higher than average (on lower volume)

There’s actually a fair amount of economic data due to be released this week – including FOMC minutes.  So there markets will have some things to digest.  But many of the players will likely be out of the office until next week.  So, while it’s bold to say, it’s possible this week is kind of a throw-away.  It’s similar to the Christmas/New Year’s holidays in that many of the players have more-or-less positioned their books so they can be out of the office.

So don’t expect a breakout week.  Futures are indicating a lower open on Monday, with the 100-day-moving-average looking like the support level — right about 2700 for the S&P500.  If you’re looking for resistance, you’ll find the first major areas at 2750 and 2790.

Have a safe 4th of July — and remember:  no forum call this week!

IMPORTANT DISCLOSURE INFORMATION

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

How Does Italian Uncertainty Affect US Equities?

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

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

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

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

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

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

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

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

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

IMPORTANT DISCLOSURE INFORMATION

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

Mixed Signals Everywhere

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

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

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

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

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

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

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

IMPORTANT DISCLOSURE INFORMATION

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

 

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.