In our last post on the January 2022 crash, we went through the process of analyzing the recent market top and following sell signal that triggered within our proprietary set of indicators.
Since then, the market has rallied a few percent from the January lows, but has struggled to regain bullish momentum despite the VIX volatility index retreating, and the bulk of the market stabilizing somewhat, chopping certainly but refusing to set new lows.
Bitcoin & the crypto market have even managed to rally significantly, gaining more than 30% from the recent lows and marching higher by the day.
So what gives? Is the market poised to base and rally, as it has been so prone to do, or is a bear market coming?
As always, we like to throw away bias and turn to the charts so we can let the data be our guide.
$JNK & $SPX
— Axelroark (@axelroark) February 6, 2022
The alignment is off a bit which is why I didn't annotate 2020, but it's similar when synced.
Credit seems to always lead, and when in a downtrend, points to an equities top that is not like the average correction. pic.twitter.com/LdaLKrrYVB
$ACP weekly
— Axelroark (@axelroark) February 6, 2022
If this move matches the rest, then 6.91 comes before anything over 10.
Added an $SPX overlay to show where in the price cycle this happens. The 2018 paradigm fits pretty well IMO.
cc: @FlyrUsr pic.twitter.com/GEZRFXmWvA
US Inflation rate.
— Axelroark (@axelroark) February 6, 2022
Weekly chart.
Looks like a breakout to me. pic.twitter.com/ci3W2lem6Z
In March/April 2010, yields were spiking as the Fed attempted to wrangle its balance sheet post-GFC.
— Axelroark (@axelroark) February 5, 2022
Bonds ate shit and $SPX was topping before a 17% correct. The first leg down was about 12%.
This is a tease of what my @caketradespro peeps are getting this weekend 😉 pic.twitter.com/0jlzuvQSay
$SPX / $VIX
— Axelroark (@axelroark) February 4, 2022
From a modeling standpoint, you couldn't ask for a better fractal. Perfect match for the most part.
The thing I struggle with is that in Jan 2019 breadth was improving and we were flirting with resistance. This time we have backed away from it. pic.twitter.com/BV5puiQWNN
$SPX breadth daily chart
— Axelroark (@axelroark) February 3, 2022
The concern I have is that it's hard to find a scenario where breadth broke down like this and did not end up re-testing the initial low, which in this case is the 2020 low.
2010-2012 but both had double bottoms. pic.twitter.com/hKgLREvFKX
$BTC 4h
— CakeTrades (@cake_trades) February 7, 2022
Ran some markers to show similar "overbought" (aka bonkers) moments, then isolated the breakouts out of downtrends.
You can see that in all cases, it resulted in higher prices.
Didn't go further back than 2020, but this is a good start. pic.twitter.com/gsjRBq5dZW
As you can see, the data is fairly mixed; some good and some bad. Hence, the market reaction is somewhat mixed, with some good days and some bad days.
The bottom line is that yes, we're running headfirst into a Fed tightening cycle, and money supply is shrinking across the globe. However, tightening cycles aren't all bad, as they generally happen during periods when the economy is strong.
Presently, global economies are recovering from Covid, but also struggling to overcome high inflation, supply chain issues, and labor shortages.
Lastly, our PCRI's indicators suggest that positioning is still protective compared to the last 18 months, but hedges are slowly coming off. That said, today the market turned on a dime and selling pressure completely destroyed the day's gains, closing equities negative, but leaving VIX negative with them.
Our advice to members is simple...the market is indecisive and choppy at best. Therefore, there's no reason to be an active participant until things clear and we have a verified bottom signal, or another moment from which to short.
Sometimes the best trade is no trade at all.