Stock Market-Reversion to Mean is Well Underway-Now What to Expect? Must Read

January 22 2022 Option Professor Opinions & Observations

This Week…We will be brief and to the point…Some of the things we spoke of for the last 6 months are coming to fruition which essentially has to do with long term charts and long term moving averages. We referred to the break of SPX 4700-4650 areas as potential confirmations that a test of longer term moving averages was on (5yr-20yr charts). We have suggested investors be ready with hedging tactics (collars-married puts-replacement trades) and those that elected to use them are happier with this weeks action. We spoke of the 12-24-36 month SMA’s on our 5yrs charts at SPX 4650-4560-4475 which have all been taken out. We spoke of the VIX taking out 23 as a sign of acceleration to the downside which also happened this week as the VIX closed at 28.85 with a high reading of 29.79. The QQQ’s & IWM has been even weaker and may suggest more to come for SPX. Our 20 year graphs have 12-24-36 SMA’s coming in at SPX 4335-3796-3524 so over time the correction as potential to be quite a bit deeper. The numbers on QQQ are 357-309 and 270 with IWM coming in at 220-188-177 so you can see that those markets have already reverted more to the mean which may or may not be indicative. The Transports numbers are 259-221-210 (IYT)—watch QQQ 357 & IYT 259. Energy/Nat Gas may back off short term but have structural shortages. International Markets-Dividends-Value held up. The Fed has 2 tools in the Fed Funds Rate & Balance Sheet run off with no experience with the size of this unwinding. Last cycle they took years to taper (2013-2015-2017) now if it’s quicker and open ended the landing will be rougher.

NEXT WEEK- OVER 100+ S&P companies report (AAPL_MSFT) & Fed’s Powell talking and Econ Numbers-Help on Way?

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Remember- All investing involves risk of loss and it is not right for everyone. Consult your brokerage firm/broker to determine your own suitability and risk tolerance. Past performance is not indicative of future results. Information and opinions are for informational purposes only. It is NOT advice.

Jim Kenney

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