Weekly Economic and Stock Market Commentary: March 14, 2022

The past five weeks all resulted in losses for the investment markets here and overseas. It appears today may be a good day, and I’m sure we’ll all be happy to take it. Each area I track at the top of the page lost at least 2 percentage points last week. Also, the January leader, international markets, seems to have lost its mojo and moved to what has become the traditional 4th place by the end of last week.

You may recall last week and at various times I’ve discussed “Relative Strength”. Well, the March Madness of college basketball is one of the best examples of ‘relative strength’ I can think of. That said and for those who don’t know me well, I don’t know much about college basketball, nor commentary around the sport. But that won’t stop me! Read-on.

How relative strength does apply to the investment world is through an investment strategy very similar to the college brackets.

Let’s face it, there simply are some teams (ie: holdings) doing better than others. Again, read-on.

Since the field expanded to 64 teams (I know it now is 68 teams), picking the number 1 seed to go far – for example, to advance to the Final Four, has been very successful, while there has been only one time when a 16 seed advanced to the second round. Moral of the story, there’s likely a good probability that the number 1 seed is better than the 16 seed.

You will have to go elsewhere to get insights as to where the imbalance between teams lessens, but I can tell you it is not at 2nd or 3rd seed level playing the 15th and 14th seeds respectively.

I won’t go into the math behind the relative strength process I use, but it is done strictly by math problems.

When I am putting together portfolios (metaphorically a bracket), I tend to pick the strong investments (based upon relative strength) first. At some point, the imbalance between the “seeds” shifts.

Now, here is the problem. I don’t know in advance when the number 1 seed is going blow itself up. It will at some point. That is what makes this business so fun.

About 2 weeks ago, the seeding between stocks and cash, and stocks and bonds, shifted (now favoring both cash and bonds over stocks. At least for the near term). The seeding between international markets and US markets has been in favor of US markets for years.

If that is not enough volatility for you, this week marks the quarterly quadruple witching of derivatives. This tends to correlate with increased volatility of the markets, and the volatility tends to go in the general direction of the recent market. The key weasel word in there is “tends.”

The bullish percent levels moved down for the NYSE and OTC. The Optionable Bullish Percent index barely budged. There is no need to change from last week’s status of WEALTH ACCUMULATION for NYSE holdings, and WEALTH PRESERVATION strategies elsewhere.

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

Below is where our indicators stand as of March 11, 2022 (Courtesy Dorsey, Wright, and Associates).

The Department of Labor announced our third round of 40-year high inflation rates for February’s Consumer Price Index. The headline number was 7.9%, while the consensus estimate of economists was 7.7%. The monthly gain was 0.8%. Over the past three months, prices are up at a rate of 8.4%. Service prices were up 0.5%. Prices rose in nearly all areas. One sector that did decline was used car prices, formerly a leader in the index. Prices were up 6.4% when ignoring the impact of food and energy. That compares with a 6% year-over-year gain for January.

Question about this week’s commentary? Contact me!