Special Bulletin: February 2, 2022

Sell the Bounce

Over the past few days, the stock market’s oversold condition did usher in the bounce we expected. This type of countertrend action is normal after a severe drop in a new downtrend.

As of today’s close, (SPX @ 4,589.31), our Current Market Outlook was downgraded to “Market in a Correction” with a red light. The “Core Four” shows 2 red and 2 yellow lights with today’s action (see top of page). The current environment for investing in growth stocks and the general stock market indexes suggests a weakening future direction. This remains a high-risk market in which the bears have come out of hibernation.

The stock market’s first rally attempt since the Fed’s new interest rate outlook moved into a resistance zone today with lackluster volume. Be prepared for a trip back down to retest the recent lows in the days ahead.

We stand by what we wrote two days ago, “the price damage suffered in several sectors over the past few weeks has been significant. This type of damage takes time to repair.”

What to do now? Expect volatility to stay elevated. Be calm and patient. We repeat: The markets tailwind (low rates and plenty of new stimulus) has now flipped to a headwind (higher rates and an end to frivolous stimulus). The market cannot go up decisively from here unless it moves back above its 50-day mav and then holds above it for several days. It may take longer for the market to heal this time. Keep an eye on the yield of the US 10-year Treasury note for a close over 2% as a market tell.

Have a Triumphant day! ®