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Weekly Economic and Stock Market Commentary: February 28, 2022


As for the stock market specifically:

The year 2021 saw the markets go up no matter which way the research pointed. It seems that 2022 will be a year where the markets will go down no matter which way the research points. Of course, when you get weeks where there are major advances off intra-day lows, the feeling of being whipsawed is part of the game.

Last week saw half the table at the top gain, and the other half lose. Given world events, and how things looked early Thursday, that’s not necessarily a bad thing. The large rallies that started Thursday afternoon brought relief to a number of investors.

As it stands as of last Friday’s close, the metaphorical spring is compressed well to the oversold level. This can resolve itself in two general ways. The first is that the spring (the market) pushes the load back to the neutral (neither overbought or oversold) condition, and perhaps stretch it to overbought. The other general way to resolve the situation is for the market to do nothing for a while, which means the market will make things neutral simply by staying in place (if that does not make sense, just give me a call. It has to do with moving averages, and as time passes, the “old” weeks fall off the back-end of the chart, and “new” weeks are added to the front of the chart. Ex.: A 40-week chart (200-day moving average) will have week # 40 fall-off as the new week is added. Moving forward far enough will bring the overbought-oversold charts back to equilibrium). Like I said, just give me a call.

There was an important change that does need comment.

The relative strength relationship between stocks and cash now favors cash. This relationship is a simple math problem calculated by market closing data and takes roughly a 10% change in the calculation to change direction.

What this means in English is that we want to own less stocks than normal, and use rallies to sell weak positions.

This relative strength situation has occurred twice in the past 14 years.

When the indicator favored cash in 2008 (Financial/Credit Crisis), the market dropped like a rock, and the indicator stayed that way for about six months.

When this situation occurred in 2020, (Covid) it stayed in that condition for six weeks.

The bullish percent indicators flipped to defense last week. At this time, the evidence favors WEALTH PRESERVATION strategies.

Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of February 25, 2022 (Courtesy Dorsey, Wright, and Associates).

On a general note:

The Department of Commerce reported the American consumer spent 2.1% more than in December. Personal income was flat. The bad news is that the Commerce Department’s Personal Consumption Expenditure Index inflation gauge rose 6.1%. That was the fastest rate in 40 years, which seems to be a recurring event when it comes to inflation news.

The Commerce Department also told us January Durable Goods orders rose 1.6%. These orders totaled a seasonally adjusted $227.5 billion.

The S & P CoreLogic Case-Schiller National Home Price Index came out last week. This reflected data ending in December. The average sales price measured from the prior data set showed a gain of 18.8%, which is the same rate as the November-to-November data reflected. The calendar year increase was the highest on record, which goes back to 1987. First-time homebuyers comprised 27% of the market, compared to 33% of the market in January 2021.  The 10-city measurement showed a 17% increase in prices compared to a rate of 16.9% increase ending in November. Finally, its 20-city gauge showed a gain of 18.6% compared to 18.3% for the year ending in November.