Stock Market- Are the Lows In @ SPX 4200 and VIX 39 or New Lows to Come? Read It!
January 22 2022
Well we have had quite the roller coaster in the markets due to offsetting penalties. On the one hand the Fed MUST raise rates and curtail growth BUT the operating leverage and the bullet proof companies have beat on EARNINGS! Economic numbers have been a bit all over the place with inflation numbers at 4o YEAR highs while retail sales, durable goods, and consumer spending suggest weakness. Q4 GDP blew out the ceiling and that is with a Variant suppressant. Let’s get real here….the inflation numbers are not going away anytime soon and Powell pretty much said if they don’t they will tighten conditions and maybe a lot because we are at full employment and they are going to serve a NEW MASTER. Since 2008; the Fed has served 2 OLD MASTERS..the economy and the stock market/asset values. They have done a great job has they teargassed everybody out of money markets (safe investments) and got everybody buying bonds (junk-corp-munis-foreign-mortgages) regardless of the yield (negative real yields). They also go everyone thinking the 25-35-50 or NO P/E’s were also a good deal. Our mantra is that things that don’t make sense don’t last! We are here. Who’s the NEW MASTERS…the 40% of America who can’t come up with a Grand for unforeseen expenses and the middle class who’s wage gains are negative PLUS both groups whacked by inflation & BOTH GROUPS VOTE!
We have seen the VIX hit 30-40 about 5 or 6 times in the last 1 1/2 years and within weeks it was back down so we will see if Fridays close is the start of that resolution. With Oil having run up; the likelihood of a strong inflation print for January is very high as rents, wages and other sticky inflationary force did not abate PLUS supply chain issues remain. Everyone who has seen their accounts decline in value are “hoping” that this is like every other correction and in short order they get their values back up. Maybe? The old adage of Don’t Fight the Fed and Don’t Fight the Tape may be apropos. If Oil doesn’t back off and wages keep rising and rents remain tight and store prices remain high and we come out of lock ups with $2 trillion of excess household worth off a GDP print of 6.9%….will the Fed tighten..of course! The saving grace is the Dollar is strong and Japan and Europe offer ZERO fixed income returns so the USA is the one eyed man in the valley of the blind..translation..while Fed’s balance sheet runs off…Asians & Europeans are the new bid.
We have told reader that when SPX broke 4700-4650-4550 and the VIX broke above 23 that an acceleration to the downside may commence. The oversold condition SPX 4200 and spike in the VIX to 39 allows for quite a bit of oscillation which we saw this week. In fact; being a LIQUIDITY PROVIDER has been the best strategy as those who sold substantial rallies (no sellers) and bought substantial declines (no buyers) especially in the futures market made $$$$$. If the best of earnings (except NVDA) are already out then further upside (if it happens) may be met with selling at SPX 4480/4550/4625. We said last year that 2022 may be a REVERSION TO THE MEAN YEAR as Growth slows and Rates rise. We already broke LEVEL ONE SPX 4335 (we closed ABOVE it Friday)….now the question is do we close UNDER SPX 4335 and take out SPX 4200 and open the door to LEVEL TWO SPX 3800 and LEVEL THREE SPX 3500? If not; SPX 4200 was it
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