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Welcome to Volatility . . . We’re There Now January 22, 2022

Posted by Tom in Thoughts.
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Jan. 21, 2022 – I was expecting volatility but wow, this was a quick flush down.  It looks like just to many things started to pile up: FED raising interest rates, Ukraine conflict, earnings disappointments (i.e. Netflix, Peleton) and of course an overvalued market.  Add to this options expiration on Friday (where the most people “need to be” wrong).  But, right now, this looks like a typical correction pattern and not a major market peaking pattern.  But that could change.

click on chart to enlarge

The chart says it all.  There is a lot of red there.  So now what?  Monday will likely be a flush out of the remaining sells that found out about this over the weekend.  Then two possible scenarios:  Monday afternoon or Tuesday, a recovery / relieve bounce back up to around 14533.  This could take a couple of days. 

  1. Then a pause then recovery to higher ground, forming a consolidation pattern before a move higher.
  2. A bounce up to around 14533 on light volume (no demand), with a final “scare the pants off” drop lower maybe even near the 1300 level (that would be bad).  This could happen quickly with news of a Ukraine invasion.

But let’s keep things in perspective.  The average drawdown in a “normal market” (i.e. between 1989 and 1999) is about 10%; we are there now.  Also, a drop to around the 200 day moving average is also “typical”; see chart below . . .  we’re there now.

click on chart to enlarge

This is a chart of the weekly S&P 500.  That gives us some perspective.  But make no mistake.  Holding the line here is Bullish, a flush through is Bearish.  With the overall economy is pretty good shape, I’m thinking this is just a normal correction and perhaps a buying opportunity.  We’ll  see, and it won’t take long.

The Short Term Sector Strength table is shown below; FYI.

This market is oversold in the near term.  The big question is will buyers come back to snap up bargains at lower prices?   Have a good week & Take Care.         …….  Tom  ……

Price chart by MetaStock; pie chart & table by http://www.HighGrowthStock.com. Used with permission.

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