As we enter the final month of Q1 2022, one thing is clear...this is a wild year!
Inflationary assets like oil, gold (and metals), and now wheat, are all spiking like the world is going to end, while equities are suffering their most volatile period in two years.
Spurred by continued escalation in Russia & Ukraine, a Federal Reserve that continues to send mixed messages, and a blood bath in the growth sector, the $VIX index closed the week at 31.97, the highest weekly close since January, 2021.
More concerning, despite an end of session rally, equities remain well off their highs, with the New York Stock Exchange closing the week at 16,129.66, approximately 7.5% below the recent highs. The Nasdaq has fared even worse, closing at 13,837.83, more than 15% off the highs.
Crypto, while showing some strength against equities, is not fairing nearly as well as gold or silver, with Bitcoin back below 40k and Ethereum into the 2500's.
So where does that leave us going into next week? Is the market ever going to find a bottom, or are we going to enter a long-term bear market? Should we be long or short inflationary assets? Bonds bottoming or pausing? Yields topping or pausing?
It's all a mess right now, but thankfully, you have your pals at CakeTrades to make sense of it all.
When we left you last week, we mentioned that it was time to start dipping toes into the market on the long side, building positions in banged up growth & tech stocks.
Our readings and charts on Monday supported this thesis.
But we also saw some signals that were conflicting and/or concerning, so we advised members to remain cautious and keep stops tight.
Tuesday we took profits on the crypto rally, which coincidentally happened to be the weekly top.
We also posted some of our signals, which reflected downside might be on the way for equities.
As it turns out, last week we caught the local bottom in equities, and this week, we caught the local top. This allowed our members to take profits and enter short equities/long volatility positions into Thursday/Friday and Monday of this week.
The signals continued into Thursday, and market price confirmed, with all equity indices closing red for the week and as of now (3/6/22 Globex open), well into the red for next week, with futures markets down 1-2% across the board.
We also advised members to avoid oil shorts, which was prescient as oil once again gapped up this Sunday along with metals and other inflationary assets.
Last but not least, we even gave our members advance notice to put on a few longs for an end of session rally last Friday, which panned out perfectly.
Going into next week, we expect more chop and volatility, with the potential for a rally into Monday afternoon or Tuesday to build out and complete what looks like a distribution pattern. Crypto should follow suit here, as should growth stocks and perhaps bonds.
We are expecting a pause on inflationary assets and think this is a good time to begin building shorts, or at least start scaling out of short-term longs.
That doesn't mean we're out of the woods yet, as it's still possible equities re-test their monthly lows and give us a chance to see if the market will cement a double-bottom low, or take the lows out and begin signaling a bear market.
As always, we'll continue to take what the market gives, playing one session at a time. Members will continue to get timely alerts and continued opportunities to both preserve and accumulate capital.
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