As for the stock market specifically:
I will resist the cheap metaphorical open since the investment world is going nuts these past few days. I am sure the cheap metaphors will come back next week, and thereafter.
Quadruple witching had a benefit for everyone last week. However, the witch swept away multiple percentage points of gains from investors’ accounts. To paraphrase a movie that is popular this time of year, “Yes, Virginia, volatility is back.”
As readers know, I don’t speak to specific holdings in this column, nor do I give specific trade recommendations. Here is a generality that is reasonably old, and I have not checked the data in some time to verify the contention.
There is a certain tradable volatility measurement. The research I saw asserted – with evidence – that once this item hits a certain level, the market always has been higher 12 months later. The measurement hit that number, so we will have to wait a year to see if it pans out again.
The American Association of Individual Investors takes a weekly survey of its members. Last week’s survey was lopsided in the bearish direction. That suggests we are nearing the bottom of this cycle.
These contrary indicators fighting each other begs the question – “OK, smart guy (thank you Dean Wormer), what does your primary research say?”
The primary research says we are a bit oversold. The relative strength of (particularly US) stocks against bonds, money market, and shorting the market is overwhelmingly in favor of stocks.
Some holdings have yet to change direction on their charts. Most have not given a reason to sell. Others may need to be sold.
At this time, there is no reason to run away, and hide by going to “extreme levels of cash.”
Less comprehensible than the movement of the stock market is the movement of the bond market. Treasury bond yields continue to fall (conversely prices are rising) despite rising inflation data, and the presumed loss of support from the Federal Reserve slowing bond purchases, as they announced at the end of their meeting last week.
The indicators went backward last week. The NYSE still remains on offense – although it is looking as pathetic as a few NFL teams I watched in the past 3 weeks. The split nature of the evidence says to pursue WEALTH ACCUMULATION for NYSE stocks, and WEALTH PRESERVATION for the OTC.
Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.
Below is where our indicators stand as of December 17, 2021 (Courtesy Dorsey, Wright, and Associates).
On a general note:
The Department of Commerce reported November retail sales rose by 0.3% compared to October. The report I saw did not include an expected level. This increase was not sufficient to keep up with the inflation movement from October to November. When compared to November 2020, retail sales are up more than 18%.
The Labor Department announced November Producer Prices rose by 9.8%. That was higher than expected and has not been seen since the double-digit years of the late 1970s.