Special Bulletin: January 31, 2022

Bounce Watch

The stock market’s oversold condition is likely to usher in a bounce in the coming days. Friday’s big price reversal (although on lower volume vs. the prior day) kicked it off heading into the last day of the month/first day of the month in-flows combination today and tomorrow.

At today’s open (SPX @ 4,431.79), our Current Market Outlook was upgraded to “Uptrend Under Pressure” with a yellow light. Our “Core Four” had 2 red, 1 yellow and 1 green light at Friday’s close (see top of page). The current environment for investing in growth stocks and the general stock market indexes displays an uncertain future direction. It seems that this remains a high-risk market in which the bears are on the prowl.

The stock market is attempting its first rally since the Fed’s announcement of its accelerated rate hike intention. While our C.M.O. signal has been upgraded to yellow, the odds are high that this first rally attempt will fail and more time will be needed to put in a bottom. 

The price damage suffered in several sectors over the past few weeks has been significant. This type of damage takes time to repair. For example, as of Thursday’s close last week, the S&P500 had fallen 439.67 points or 9.22%, and the Nasdaq tumbled 2,292.19 points or 14.65%. Many leading mutual fund managers suffered even larger losses since January 1st, as seen on this IBD graphic.

(Source: Investor’s Business Daily 01/27/2022, General Market Indicators page)

What to do now? Expect volatility to stay elevated. Stay calm and employ patience. 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 can not 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. Stay focused on the yield of the US 10-year note for a close over 2% as a market tell.

Have a Triumphant day! ®