Premium Market Update
In last week’s premium report, I shared analysis that pointed to additional market downside and officially stated that I was short-term bearish on the broader market. There were two factors that gave me this bearish outlook in the short-term:
The Federal Reserve’s tightening cycle, something that the market had been fearing since November 2021, was officially underway with the FOMC meeting on 3/16/2022. The end of monetary stimulus was the core factor of my “Investment Outlook for 2022”, where I gave an 80% chance of below-average stock market returns. So far, this prediction has been spot on. We’ve seen heightened volatility, market weakness, and a sense of enthusiasm capitulation.
The S&P 500 closed below the 55-week exponential moving average, indicating that a return to the 200-week EMA was probable based on historical trends.
While I stated that “ I reasonably think the S&P 500 could fall an additional -10% to -13% over the next 4-20 weeks”, I also reassured that “I don’t think investors should be running to the exit doors”. Understanding and preparing for downside scenarios is a key aspect of managing risk and preserving mental capital. One week of data is not sufficient to invalidate the words of caution that I’ve recently shared; however, we saw encouraging data this week that could force us to increase bullish probabilities.
In this newsletter, we’ll analyze those new bullish data points & discuss their historical context, review under-the-hood metrics for the S&P 500, and highlight the specific variables I’ll be paying attention to this week.