Volatility Reports 1/11/22
January 11, 2022
January 11, 2022
The Santa Claus Rally is Melting Away.
Since the spring of 2021, it seemed like everyone was waiting for the rush to value stocks. Well after a whip-saw double top the flow of funds into value shares vs the glamour growth stocks is here.
The first chart is the ratio between the two indices. The big advance from the 2018 low was all FAANG and related companies. From a traditional TA point of view, an irregular top has been put in place, with the nominal new highs seen in the left-hand chart window labeled (B).
The indicator below each chart is the relative performance of growth vs value, which is pointing lower.
The irregular top has extremely bearish implications but adding on top of that from an EWT perspective the advance from the 2019 pivot is an extension. By rule, extensions are retraced back to the price where the extension began. The implication for the growth stocks is a high risk while value shares are expected to decline at a lesser pace, aka perform better.
Here is a textbook example of via the SENSEX how the market corrects a fifth wave extension. Note how the decline ends were the fifth wave extension began.
The SENSEX unfolded in an A-B-C decline. Alternatively, the ratio chart above shows the irregular top that would decline in a five-wave structure, with as much damage. So the bar chart structure of the decline is academic in terms of risk assessment, as they both imply 70% risk for the FAANG.
The FAANG index points to the assumed starting point of the extension back to the triple bottoms at (2), 2, and (ii).
The following chart was posted in the LI group with a brief comment that the glamour shares are set up for a forceful trend. The Technical Event Model (TEM) on the weekly bar is signaling a TE#4, a context that supports carry over after a break is triggered. Please note the index broke below its wedge channel, and how should see follow-through.
The daily bar – the right-hand chart window – is on a new set up TE#2 calling for a trend. The minor recovery today does not change this outlook. Sell rallies.
With the next COT still a few days away and only a very few signs of a mini panic in our indicators, the media, and the Twittersphere, there is more decline to come in this macro sector. And as pointed out at the end of last week, cycles support the increase in the ROC, for the trend to be more “pro-directional.”
Adding to the pent-up horror bulls should be facing in the next few weeks, is the monthly bar charts signaling they are ready to trend. TEM is on a new Rule #2. Once moving averages begin to cross under for the big boys or the 3 to 5% band is broken, the selling should become more intense. In the FAANG index chart above right, you can see how this market has signaled lower prices with its 5% alert back in December.
There is a 70% risk in the old leadership with the majority of the damage being done in the first half of 2022. If you have not taken profits, please do, if you are looking for hedge ideas and not a member, please join up, and do not buy these stocks no matter how great sounding the sales pitch.
Around The World
In this month’s edition of Around the World with Academy Securities, our Geopolitical Intelligence Group (GIG) focuses on providing their perspective on the following geopolitical risks and potential surprises for 2022:
1. Will Russia Invade Ukraine in 2022?
2. Will there be a China | Taiwan Conflict in 2022?
3. Potential for Military Action against Iran in 2022.
4. Risk of a Major Cyber Attack in 2022.
Contrary Thinking Begins Here
Great and Many Thanks,
Jack F. Cahn, CMT
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