Weekly Market Analysis - 1/28/2022

Last updated: Jan 29, 2022
Weekly Market Analysis - 1/28/2022
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 1/28/2022


We've just seen another very volatile week, but this one less one-sided than last week, with a strong tug-of-war between the bulls and bears taking place now that every index has reached correction territory, at least on an intraday basis. As we predicted last week, the markets put in a bottom (at least temporarily) on Monday before a strong intraday rebound Monday afternoon. However, unlike many other mini-corrections over the last year, there was no follow through, with the indices mostly trading sideways in a very choppy manner until surging in the last 3 hours on Friday afternoon. All three managed to finish green for the week, giving bulls some hope that the worst might be behind them.

A big Apple earnings beat soothed some investor nerves, especially since Tim Cook proclaimed the end of supply chain issues is in sight this year. Is the correction over, or are we only going to see a dead cat bounce before falling into a bear market? Follow the signals from our models, and you won't have to make that judgment yourself.

S&P 500 Daily Chart

After a brutal drop to start the week with the SPX briefly hitting an intraday low of 4223, a rebound took place closing with a doji candle on Monday. This led to a retest of the 200-day SMA on Wednesday which failed setting the stage for some very choppy trading for the rest of the week. However, the index was able to put in a higher a couple higher lows at 4287 and 4292 before closing very strongly on Friday afternoon right at the 200-day SMA again. So far, the SPX has a max drawdown of -12.35% on this correction.

Dow Daily Chart

The Dow maintained its position as strongest index on the week, with a weekly gain of +1.34%. The Dow traded much more of the same pattern as the SPX this week than it has over the last few, closing red and green on the same days. On Wednesday the bounce failed after testing the weekly lower Bollinger Band at 34,825, but like SPX, the Dow finished the week with a strong gain on Friday, but it still rests -0.72% below its 200-day SMA. So far the Dow has a max drawdown of -10.30% on this correction, barely qualifying.

Nasdaq 100 Daily Chart

Although it barely closed the week in the green, the NQ maintained its position as the weakest index for the second consecutive week. It barely escaped bear market territory intraday, with the Monday drop to 13725 representing a -18.13% max drawdown during this correciton. However, like the other indices, the NQ was able to put in at least one higher low at 13,880, and it closed the week strongly with a +3.23% gain on Friday, no doubt helped by a strong earnings report from AAPL. It currently rests -3.71% below its 200-day SMA.

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 the indices rallied strongly off the panic oversold levels from Monday this week. Whether this is the end of the correction or not we'll defer to closely listening to our models. The 10-year yield is backing off from its recent highs at nearly 1.9%, indicating some possible relief to come for the Nasdaq.

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.