Special Bulletin: December 22, 2021

Another Question Mark Moment. Who Will Score First?

Our Current Market Outlook has improved to “Uptrend Under Pressure” today with a yellow light. The stock market is trying to mount a Christmas/year-end rally even after the Fed’s interest rate announcement last week. Our “Core Four” has improved to 1 green (barely), 1 yellow and 2 red lights (see top of page) as the VIX has sunk below a key area confirming less fear at the moment.

The risk/reward ratio for investing in growth stocks and the general stock market indexes still reflects higher than normal risk at these lofty price levels. Remain vigilant to move to a more defensive stance if the S&P500 & Nasdaq slice below their 50-day moving averages on increased volume over the next couple of weeks.

The math of the market continues to show deterioration in its underlying internals and the undertow, identified early here by studying the footprints of money, is still in place.

This is a whipsaw, or choppy, market. One in which neither the bulls nor the bears can have much conviction about their current market thesis. It could be compared to a football game where both teams have had the ball several times for a few plays but then punted, or worse, coughed up a fumble that the other side recovered. And then they too ultimately punt (or throw an interception) after a few of their own plays. The folks with the seats near the 50-yard line see all the back-and-forth action, but neither team scores leaving the fans near the end zones frustrated.

Here are a few technical (game) stats to consider.

Positive (Team bulls): There were 2 positive non-confirmations on Monday; the number of new 52-week lows did not expand even as the main indexes hit a lower price level, and the VIX (fear index) did not hit a higher-high with that move lower in the indexes.

Negative (Team bears): The net advance/decline line is still lagging, while the number of daily new 52-week lows remains elevated.

Positive: Both the S&P 500 and the Nasdaq indexes have closed above their 50-day moving averages today. (I’ve heard it said, “nothing good happens under the 50-day mav.”)

Negative: The 2-day rally (bounce) off Mondays lows has been on very low volume. (Seasonal perhaps, but very disappointing.)

Positive: Evidence of new sector leadership, highlighted by a handful of certain select stocks, is developing even as the chop continues.

Negative: The key indexes, though above the 50-day mav’s, are back to resistance areas.

It’s very clear why our “Core Four” is currently yellow. The math of the market once again is worth trusting and factors it all in.

We have been adding exposure in small doses over the past 2 days but will remain defensive until the “question” is answered.

What to do now? Freshen up your watch lists with stocks and sectors that are trying to lead. Watch for a downward vertical violation of the 50-day mav on the S&P 500 index. Don’t take your eyes off the yield of the US 10-year note.

Have a Triumphant day! ®