I promised you a turbulent trading week and at least on that front the market did not disappoint. Once it was done punching itself in the face a few brave bulls valiantly stormed into the ring and began to smash the referee with folding chairs. In all the chaos and commotion buyers with deep pockets somehow managed to stage a last hour stick save, pushing the SPX back toward 4,420.
The third week of January 2022 will be remembered as the moment when Lucy finally was handed her well deserved comeuppance. And when I speak of Lucy I of course mean Jerome Powell and his esteemed colleagues at the FOMC. In other words once the realization of higher interest rates and a veritable avalanche of corporate credit defaults fully set in, the equities market decided to send Powell a clear message ahead of this week’s FOMC announcement.
Since early November equities have been stuck in what seems to resemble Lucy Van Pelt’s purgatory of pain. Alongside a marked increase in volatility the SPX managed to heave its battered carcass to new ATHs on January 4th, only to immediately fall back and paint what is now increasingly looking like a topping pattern. The situation is looking serious but I cannot help but think that we’ve all seen this same type of setup all too often over the course of the past two years.
You know the old saying – if it looks like a duck, walks like a duck, and quacks like a duck, it’s a donkey. Okay, maybe I got that one mixed up – but that’s the sort of rational thinking we’ve come to expect from the equities market for well over a year now. More specifically as equities crawl their way higher month over month implied volatility continues to range in ‘problem space’ territory.
With the futures down and falling ahead of the Monday open it’s time to take a look at important inflection points that will affect the medium term direction in equities and other correlated markets (crypto increasingly one of them). And as a trader it’s particularly important to determine when one’s bullish or bearish hypothesis meets its make or break point. Fortunately the market has left us with fairly clear clues as to where to ‘draw the line’ literally speaking:
If you’ve been missing my weekly updates as of late then you’re not alone. As much as I enjoy to whinge about long hours and a chronic lack of personal time the truth of the matter is that I really enjoy writing these posts. After 13 plus years you’d think I’d eventually run out of material but given the crazy times we all live in not a day passes by that does not warrant a bit of commentary occasionally infused with my notorious teutonic humor. Expressing my views here also helps me to hone and sharpen my own perspective on the market and the approaches I take to stay ahead of the market’s giant slam hammer.
Shoving lumps of coal up the bear’s hindsides has been a long standing EOY tradition, and at least in that respect 2021 did not disappoint. Of course if you happen to live in Europe where energy prices are currently exploding after German regulators – in their infinite wisdom – decided to postpone the certification of Nord Stream 2 to spring next year, then all those coal filled stockings may just get them through the winter without being tarred, feathered, and carried out of town on a rail.
I’m going to spare you the sordid details but in a nutshell our move from Valencia up to the North of Catalonia has effectively blown up in our faces. Two moving companies in succession screwed us over, which means we are currently sitting in our Valencia apartment surrounded by a few dozen boxes while we are considering our options. Which are quickly diminishing as Christmas is only a few days away. I’m literally writing this post on my MBP positioned on top of an old shoebox.
First up apologies for my perennial absence over the past month. As you may recall I’ve been planning to move my operation up to the North of Spain for quite some time now. Even before the COVID crisis life in Valencia had become too stressful and noisy as tourism exploded during the past decade. The constant drumming of the NYT and various travel publications for Valencia being the #1 expat destination frankly didn’t help matters.
Last week the stock market suddenly tripped over its own feet and landed on its face. This came a bit as a shock to many participants who over the past year became conditioned to a uni-directional market exceeding one ATH after the other. Of course what happens on an initial leg down rarely matters, what does however is the follow up, so let’s talk about that.