Weekly Market Analysis - 2/11/2022

Last updated: Feb 12, 2022
Weekly Market Analysis - 2/11/2022
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 2/11/2022


We've just seen yet another very volatile week, with an eerily similar chart to last week's, albeit with wider moves. All indices managed closed solidly in the red this week with the NQ leading the decline with an abysmal -2.99% weekly showing. Through Wednesday, it looked as if the correction was coming to a close with the Dow breaking last week's high and the SPX nearly touching it, but then a higher than expected CPI report at 7.5% threw a wrench in the rebound story. Hawkish comments by several Fed members made the market price in a much higher likelihood of a 0.5% hike at the March meeting which threw gasoline on the fire.

Geopolitical concerns over potential Russian warmongering only added to an already weak market's fears and all short-term support levels were eviscerated on Friday. Are we going to retest January lows next week, possibly even breaking them and falling into a bear market? Or will we put in a higher low next week and continue the rebound with more confidence? Follow the signals from our models, and you won't have to make that judgment yourself.

S&P 500 Daily Chart

After a slow start on Monday, market participants became enthused on what appeared to be a higher low set at 4471, and the SPX surged on Tuesday and Wednesday to nearly reach its highs of last week with a 4590 print. Unfortunately for the bulls, all the gains were erased and then some over the rest of the week as a bad CPI report and Russian warmongering took its toll. On Friday, the index sliced through its 200-day SMA at 4452 as well as the weekly lower Bollinger Band to finish the week solidly in the red.

Dow Daily Chart

The Dow returned to its standard position as the relatively strongest index on the week with a mere -1% loss. Whether baseless or not, it continues to benefit from the perception of value and safety during these uncertain times of upcoming rate hikes and geopolitical instability, especially in Eastern Europe. It mostly traded in lock-step with SPX this week with just relatively muted movements, although Friday it exhibited a quite bearish performance violating its 200-day SMA at 35,040 and closing just under its weekly lower Bollinger Band at 34,806.

Nasdaq 100 Daily Chart

The NQ returned to its familiar position as worst-performing index this week with a dismal -2.99% showing. It kept on pace with the other indices during the green early days, but it absolutely fell apart after the higher than expected CPI report was released Thursday morning with accompanying hawkish Fed comments. It managed to touch its 200-day SMA at 15,048 on Wednesday before getting slammed back down, and unlike the Dow and SPX, the highs this week on NQ were still well below last week's.

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, the bull market won't go down without a fight, and even after the sharp declines on Thursday and Friday, the indices are still well above their lows from late January. It started to look like one of the typical V-shaped recoveries we've become so used to seeing in the QE-era, but then the market remembered that the Fed is stuck between a rock and a hard place as the very hot CPI report and surging 10-year yield brought a reality check. Whether this late week bearishness is enough to push us to retest or even break late January lows we'll defer to closely listening to our models.

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.