1-21-2022 : SP500 Daily Analysis

 Note: This analysis posted on 24-Jan-2022, but was done on prior to market open on 24-Jan-2022.

Fear has not subsided, initial enthusiasm in the morning met by lot of pessimism and fear. SP500 lost another 1.9%. On Daily basis cracked under 200 SMA at 4429, which considered to be good support in general, but fear is involved, nothing matters and there was no fight from bulls, bears are pounding again, evident based on the close 4397, big stocks falling like house of cards. On 1-19-2022 analysis report, I asked are we going below 4500?, last couple of days we crossed 4500 level and went below and now there are high chances we hit under 4300, based on what happens there will determine whether we go and touch 4000 as I have mentioned that could one of the targets for this downward moment.

One more thing I want to mention, and I am convinced that there is lot supply coming to market and that is yet to be absorbed, this will take time and will see further downward movement until supply is exhausted. Whole 4-Nov-21 to 12-Jan-22 structure is a distribution and the downward movement both in terms of price spread and acceleration is high since March-2020, this is what I mentioned in the last report, if we break 4500, this structure becomes distribution. There are few scenarios that plays out.

1. We rally from here to 4500 and met with huge resistance (supply) and continue the downward path till 4300 and again we need to revisit based on the clues what happens at that support level.    
2. Another one is, we straight away go to 4300 level and bounce back as it has some support level and then can continue downward movement if demand is overwhelmed by supply at that point, need to wait and see.

VIX, the fear index, as called informally, is rising from 23.85 to 28.85 since we discussed last time, that’s 20% rise in two days, a lot. This is proxy of what happening the market. This will show whether market is becoming or nervous, right now that is the case.

Ok, what happens if this structure is distribution?

Stock Market goes through cyclic bull markets and bear markets within secular bull and bear markets. Secular bull markets stay for 20 years and secular bear markets for 12 year, atleast this what happening since 1950s, except in the bear market from 1930 lasted for 20 years. Below is one of my favorite charts, I got this from article by Tom Bowley. We are still in Secure bull market, so there is long term bullishness, no doubt about it, but within secular bull market we can cyclic bear markets and bull markets, example the one happened in 2020. Its quite interesting its happening now after two years (atleast I did not expect this cyclic bear market happening so soon), but we will tide this one soon.

 

As I mentioned above, we can see SP500 coming to 4300 and to 4000, its possible (highly). But What I always want to look for is, is there something else worst and wanted to atleast acknowledge and get prepared for it. Based on the Fibonacci levels from the March 2020 lowest to Jan-2022 highest level, 38.2% comes at 3850 level. There is some possibility we can hit if things get worse. I am not putting this here as placeholder and if it happens then don’t want to claim I said so, that’s not the intention here. Want to see, whether things can get worse before they get better. This worst-case scenario, this gives perspective whether to sell out and sit this one out or hedge or trim your portfolio. Earnings season will decide to some extent whether we go here or not. My recommendation is trim it if you can, especially stocks that went very high and not profitable companies. Companies with good earnings always recover after math.