He took his time, but we were honored by the start of a “Santa Claus Rally” last week, as we described in. For many reasons we listed in our article last week including lighter volume, less institutional buy / sell amplifying the higher retail portfolio positioning, year-end bonuses, distributions in profit-sharing plans and the belief that Omicron is not quite as powerful as originally expected (although a record number of COVID cases have emerged in the United States), it was a reason enough for buyers to enter.

We seriously suspect that the defensive stance that took hold in late November and early December met with “what now” and people have been clamoring for redeploying some of the money that ended up in behind the scenes. In addition, a spike in negativity caused bears to become less defensive and to “throw in the towel” they needed to have a firm hold in the market.

But how long will it last? The markets (and our technical indicators) point to a less healthy environment (intermediate to long term). Valuations still above normal (P / E, Price to Book and increased manufacturing and production costs) may lead to prognosis that 2022 may not produce returns close to 2020 and 2021.

In fact, large companies like Bank of America and Morgan Stanley have both recognized a slowdown in corporate earnings and a possible contraction in multiples; especially if rates rise even more slowly. Both are calling for a year-end (2022) below where we are today.

Who knows? We are shrewd enough to know that the market, money flows, geopolitical risks (Taiwan, Ukraine, and the Middle East may all increase), revenue growth from top-line potentially slowing, and potentially bottoming out bottom lines. will do more to dictate where the markets go and override many of the best expert guesses where we end up.

For now, we will depend, as we always have, on our analysis tools, our exclusive indicators, the management of our investment strategy with aversion to risk, our good experience and our good sense to guide us. Here are some of the metrics that we take a closer look at:

Risk activated / bullish

• Risk gauges improved to Risk-On for and, and improved to neutral for
• In addition to being stable over the last 5 trading days, the other 3 major indices have improved, with 3 out of 4 returning to their bullish phase.
• IWM returned to a positive TSI, but remains in the distribution phase
• SPY hit a new all-time closing record on Thursday
• Sentiment measured by the McClellan Oscillator has improved to a positive reading for SPY, working on an oversold condition
• Cash volatility (.X) closed below its two key moving averages on Thursday, indicating activated risk
• Risk sectors dominated this week with semiconductors (), technology () and consumer discretionary () leading the performance
• Modern Mish Family Shows Transport () returned to a bullish phase on an impressive performance this week, while Biotech () appears poised to break its long-term downtrend and return to a recovery phase.

Risk disabled / Bearish

• The Hindenburg Omen indicator added another omen, now producing a total of 21 omen in the market
• Sentiment readings show IWM is a bit wealthy after its strong rally this week, with the number of underlying stocks above their 10-day moving average reaching 80%
• Sentiment as measured by short-term or long-term volatility (VIX / VXV) shows some foam
• (NYSE 🙂 is now above its two major long-term moving averages, although it was mostly flat over the week; now in a bullish phase probably due to geopolitical tensions in three areas: Russia-Ukraine, Iran-Israel and China-Taiwan
• Long-term valuation metrics continue to remain at historic sparkling levels

Neutral metrics

• Volume patterns are neutral, but not as significant this week with holiday markets
• Half of the sectors we follow were down in the last 5 trading days
• The value () versus growth () has retreated from its recent run and needs to maintain current levels to extend the risk aversion theme of the ratio
• Emerging markets () have rebounded from oversold levels and seem to want to turn back
• Metals & Mining () was also extremely strong, up 4.47%
• Although price flattens, bonds () remain in a bullish trading range
• The US Bond Blend ETF () is under pressure and in a bearish phase, pointing to higher rates, but if the rate hike continues at this slow pace, it is unlikely to upend equity valuations as long as certain thresholds are not reached (1% short term?)