Look Who Finally Showed Up

December 26, 2021

Weekly Market Outlook

By Keith Schneider


blankHe took his time but we were graced with the start of a “Santa Claus Rally” this past week as we had described in last week’s commentary.

For many of the reasons we listed in our article last week including lighter volume, less institutional buying/selling amplifying the more retail portfolio positioning that takes place, end of year bonuses, distributions into profit sharing plans, and a belief that Omicron is not quite as potent as originally expected, (although a record number of Covid cases emerging in the U.S.) it was reason enough for the buyers to come in.

We suspect in earnestness, that the defensiveness that took hold in late November and early December was met with “what now” and people clamored to redeploy some of the cash that found its way into the sidelines. Also, a spike in negativity caused the Bears to become less defensive and “throw in the towel” that they needed to have some capital firmly entrenched in the market.

But how long will that last? Markets (and our technical indicators) are pointing to a less healthy environment (intermediate to longer term). Still higher than normal valuations (P/E, Price to Book and expanding cost of manufacturing and production) may lead one to prognosticate that 2022 may not produce returns anywhere close to 2020 & 2021. In fact, large firms like Bank of America and Morgan Stanley have both acknowledged a slowdown in corporate earnings and a possible contraction of multiples; especially if rates rise even slowly. Both calling for an S&P 500 end of year (2022) below where we sit today.

Who knows? We are astute enough to know that the market, money flows, geopolitical risks (Taiwan, Ukraine, and the Middle East all potentially flaring up), the dollar, inflation, top line revenue growth potentially slowing, and eventually bottom-line earnings will do more to dictate where the markets go and will nullify many of the pundits’ best guesses where we will end up.

For now. we will, as we always have, depend on our analytical tools, proprietary indicators, risk averse investment strategy management and good ole experience and common sense to guide us. Here are some of the indicators we look at in more detail:

 

Risk On /Bullish

 

Risk Off/Bearish

 

Neutral Metrics

 

Crypto

  • Bitcoin (BTC) has successfully regained its key 200-day moving average, currently targeting $53,000 to re-establish the October-November trading range
  • Ethereum (ETH) is consolidating at the $4,000 price level, with support at $3,875 and the 50-day moving average as the level to regain around $4,250
  • Cryptocurrencies performed well across the board this week with top performers including Polygon (MATIC) +26.8%, Terra (LUNA) +31.6%, and Polkadot (DOT) +19.1%
  • Despite performing well on the week, Bitcoin is still the laggard behind the defi layer 1 sector of the crypto market. We’ve come to know Bitcoin and Ethereum as the two key benchmarks of the overall market, but now other large-cap coins such as Solana (SOL), Avalanche (AVAX), Terra (LUNA), and a few others look to be rising stars as we get ready to start 2022.

Content for this article was contributed by: Keith Schneider, Donn Goodman, and Holden Milstein


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