Weekly Market Analysis - 1/21/2022

Last updated: Jan 21, 2022
Weekly Market Analysis - 1/21/2022
With a good perspective on history, we can have a better understanding of the past and present, and thus a clear vision of the future. Carlos Slim Helu

For the Week ending 1/21/2022


What a week! The indices closed red every single day this week, unable to stage any recoveries that lasted more than a few hours. While we anticipated increased volatility this year, even we were caught off guard with the pace of the continued declines. It's amazing how quickly Mr. Market can change his tune from time to time. Most financial blogs are now packed with extremely bearish articles calling for the end of the nearly 13 year bull run.

A big Netflix earnings miss and continued bearish momentum hit tech hard this week and overall negative sentiment brought the other indices down with it. There was nearly no place to hide with cryptocurrency also posting large declines. Is the correction over, or is there much more downside to come? Follow the signals from our models, and you won't have to make that judgment yourself.

S&P 500 Daily Chart

Except for a couple failed intraday bounces, the SPX was skiing straight downhill this week, ending every day in the red. The index hit the 200-day SMA on Friday, and briefly bounced off of it back into the green 1.6% off the low, but it could not hold any bullish momentum, and the day ended nearly -2% down, cementing a truly awful week with a -5.69% performance. This is the first close below the 200-day SMA since February 27, 2020, during the COVID-19 panic. The index now sits deeply oversold, -3.75% below the weekly lower Bollinger Band with just a 17.85% 9-day RSI.

Dow Daily Chart

Though it still finished -4.59% down for the week, the Dow actually held up best among the major indices, benefiting from the perception that blue chips will be safer in a potential upcoming bear market. Nevertheless, this downturn has nearly become a full-blown correction instead of merely a rotation from growth / tech to value which explains the Dow's increasingly similar chart patterns to the other indices. The Dow crossed below its 200-day SMA on Thursday and now rests firmly -1.96% below it. However it's still the least oversold from a medium-term technical perspective, sitting just -2.05% below its weekly lower Bollinger Band.

Nasdaq 100 Daily Chart

Following a brief reprieve last week, the NQ resumed its position as worst performing index that has been the trend for a while now as whether really true or not, investors now see big tech as overvalued compared to the overall market. I'm not sure I agree overall when growth engines like GOOG and FB have significantly lower P/E than NKE, PG or MCD, but there's definitely a strong case of overvaluation of AAPL, which rose 80%+ over the pandemic despite growing revenue only 15% and NVDA which has somehow maintained 25x P/S even as its market cap far surpassed 0.5T. The index is now massively oversold, closing -6.73% below the weekly lower Bollinger Band.

Weekly Economic Statistics

Cur. Unemployment Rate
Initial Unemp. Claims
Continued Unemp. Claims
10 Year Treasury Yield
3 Month Treasury Yield
Effective Fed Funds Rate
S&P 500 Price / Earnings
Shiller P/E (CAPE)
Shiller Risk Premium (CARP)
AAII Sentiment Bulls
AAII Sentiment Neutral
AAII Sentiment Bears

Though the economy appears strong, rates remain historically low and valuations historically high. This is a dangerous combination as the fed continues tapering asset purchases and expects to raise rates in 2022 and 2023, especially as they have now all but confirmed rate hikes are starting even earlier than previously anticipated.

The CAPE and CARP suggest that the market is highly overvalued, and the tightening of liquidity by central bankers could be the pin that pops the bubble in the medium term. Our models factor in all of these statistics and many more and boil them into reliable signals to help you avoid large drawdowns. Try our VIX Basic model totally free.


2022 has started with a bang, and not a good one for the bulls. So far our working thesis of a pickup in volatility this year has played out. Nevertheless, seasonality remains strong and some of the indices are entering quite oversold levels. Whether this is the end of the correction or not we'll defer to closely listening to our models. Our VIX Basic closed a successful sell signal on Thursday, but while we are outperforming the market, we have unfortunately not caught the majority of the drop as the magnitude and pace have taken many people by surprise, including us.

Do we have more volatility to look forward to in 2022? Quite possibly, and if so that would be great news for our models, which always outperform in years of turbulence. In fact, the only way our models outperform is through avoiding drawdowns as they are macro focused and alternate between 100% SPX and 100% cash. Though our models, especially our advanced premium ones, have outperformed the market nearly every year of the bull market, the most striking outperformance came in 2018 which coincided with the worst year for the market as a whole since 2009.