Bullish or Bearish? Week of January 3, 2022

WHAT THE INDICATORS ARE SAYING 

This is what the technical indicators are telling us this week: 

One-week trend = HIGHER. The bulls retained control and moved SPX from 4725 to 4766 last week, a 41-point gain. As expected, the market rallied early in the week and weakened later as volume and volatility decreased.

SPX 20-day (WEEKLY) = HIGHER. SPX has remained above its 20-day moving average.

RSI: (S&P 500) @66.28 (WEEKLY) OVERBOUGHT. RSI is overbought but still not at extreme levels (over 70 is extreme).

MACD (WEEKLY) = NEUTRAL: MACD is still above the zero line (bullish) and even with its 9-day signal line (neutral). MACD not giving significant signals (with SPX).

Daily Intraday Volatility (VIX) = 17.22 = LOW: The holidays are over but fear is still on vacation as the bull rally continues. The low VIX reflects how complacent investors and traders have become.

Comment: Although I avoid making predictions, I am certain that 2022 will be different than what we have seen in the past. With the Fed planning to raise rates (so they say), and inflation heating up, 2022 may not be as pleasant for investors. At the very least, it should be a more challenging environment.

After a 13-year bull market, investors are hoping that the good times will continue, and at first they may. Last week, the so-called Santa Claus rally brought cheer to Wall Street. Now it’s time for the “January effect.” The theory is that the first week of January determines the rest of the year. FYI: I did research on this “phenomenon” and discovered that it is statistically insignificent.

In other words, even if this week is positive, it doesn’t mean anything for the rest of the year. Instead, pay attention to the Fed, inflation, and whether the virus adversely affects company earnings. That is much more relevant than the so-called “January effect.”

Futures are higher on Sunday night although that could change in the morning. This is the first full week in a while, so it will be interesting how the month of January develops.

Advice: As always, diversify, have cash on the side for emergencies and to buy dips, and buy quality stocks. And use technical analysis to help with buying and selling decisions.

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Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G 

For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA

For insightful analysis of the stock market, read Lance Roberts’ latest newsletter:www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com

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