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Part I: The World Market Model
In the northern hemisphere, people generally relate the month of October to the season of fall—a time when the days grow shorter, temperatures grow colder and leaves fall from the trees. The World Market Model below, however, looks more like spring. With pollen and new growth almost everywhere, yellow and green abounds. Are the months of red and brown symbols over? We can’t tell yet but let’s take a look at November’s numbers.
Working our way around as a clockface, from the 12 o’clock position:
- The US market segments are all positive now—mostly yellow. And, almost as many segments are light green.
- Europe and Africa show slightly more strength with about half of the countries being green. Greece (GREK) is the strongest market while Nigeria (NGE) is the weakest.
- US and global sectors are about half and half yellow or green. Oil & Gas Equipment (OIH) and Broker Dealers (IAI) win the top spots while volatility is the weakest. The market type volatility chart (further below this update) shows how volatility has been weakening in the last two months.
- The most talked about sectors range from a very strong hemp ETF (HMLSF) to the very weak AI ETF (AIIQ).
- Currencies are an even mix of yellow and brown. Among the brown is one standout—UUP, the USD bullish ETF. For months, we have seen this symbol be the only green or nearly the only green symbol in the model. The USD index peaked and turned down two months back so now UUP has a negative score.
- Asia markets range from green to brown.
- The American markets, outside the US, are green except for Canada which is positive, just weakly so.
Below, commodities range from a strong steel (SLX) at 1.2 to the weakest, natural gas (UNG) at -.17. Both metals ETFs and global water are light green with almost every other commodity yellow. Real estate and bonds continue with almost all negative scores. Rising rates are going to continue hurting these areas for the foreseeable future.
For the first time in months, we are seeing dark green ETFs atop the Top 15 list. Also, for the first time in many months, USD bullish ETFs are not on the top list. Among the top 15 in November, oil and gas equipment ETFs show up several times as a recurring theme.
On the Bottom 15 list, the scores are much less negative than previous months. Rising interest rates are filling the bottom list with debt-related symbols.
Last month, 50% of the symbols in the database were in the Very Bearish category and this month 49% are in the Neutral category. At the beginning of December, 25% of the symbols are in Bullish mode while 23% are in Bearish mode. That’s a major shift—a lot of capital across the globe has moved to make that happen. Will this balanced state last? Probably not for long. As Dr. Ken Long likes to say, “The market never reacts when it can overreact.”
Part II: The Big Picture
Markets are being influenced by:
- The weakening USD.
- The Fed hinting it could slow its rate hikes down but not stop them.
- Inflation.
- Strong employment in the US.
- China’s zero Covid tolerance policy. The continued lockdowns have a global effect on growth.
Part III: The Current Stock Market Type is Sideways Volatile
The S&P hit a bottom in midmonth October and in the last seven weeks has risen nearly 600 points—about 16%. That’s a nice bull run reflected in the shortest timeframe we check using Van’s market type process.
200 days – Bear (Strong Bear last month)
100 days – Sideways (Bear last month)
50 days – Sideways (Strong Bear last month)
25 days – Bull (Sideways last month)
The move has been strong enough to pull every one of the longer-term periods up by at least one directional market type with only the 200-day period still in bear. 200 days is most of the chart below so you can easily see that, over the last ten months, the market is down. We use the 100-day period for labeling the market type and you can tell that’s sideways. The S&P is about where it was 100 days back in mid-July.
The chart below tracks the Market SQN score (100 days). You can see the line moving into the Neutral (sideways) zone in early November and staying there for the rest of the month.
Volatility peaked in September and has been declining steadily since then, though it remains in the Volatile range. If volatility continues to decline, it will be in the Normal range in a few more days. Normal volatility correlates more highly with sideways or bull market types.
In the indexes table below, the numbers say that the Dow continues to recover and has almost reach breakeven for the year while the other indexes remain well under water.
That index recovery unevenness is easier to see in the following chart. The Dow (in red) is nearly back at the zero line for the year. Meanwhile, the S&P and Russell (blue and pink) are well below zero, with the NASDAQ (green) still near its lowest levels for the year.
Part IV: Van’s Four-Star Inflation-Deflation Model
Would you be surprised if the model went decidedly deflationary in November?
Every model component registered deflationary scores for November. Are the Fed rate hikes working that well already?
Part V: Tracking the Dollar
USD peaked at a multi-decade high in September. Since then, it has dropped about 8% and broke through its 200-day moving average on December 1st.
The only major currency weaker against USD since its peak is the Canadian Dollar. Every other major currency is slightly stronger or noticeably stronger since September.
Conclusion
Equities have been rising strongly for nearly two months now. So far, this move up rhymes with the June/July rise. But if the S&P keeps rising, it will break out of the bearish channel it has been in for 2022. What could that mean?
- Is the bear done and a new bull starting?
- What about tech? Is that bull run over or just taking a breather?
- If the Fed actually does reduce its rate of rate hikes, will the market take off?
- But if the market turns down, how low will the market go?
These may seem like urgent, pressing questions to figure out as you scan the charts. Trying to answer those questions, however, crowds out much more important questions, like:
- Who are you?
- What are you trying to accomplish?
- What process and which systems will you create and use to reach your objectives?
- How do you manage risk?
These are the kind of questions to be answering first and answering deeply. That’s the kind of self-work that needs doing long before thinking about entering and exiting positions. I don’t know the young woman, but I’d guess those aren’t the kind of questions upon which Caroline Ellison focused her efforts before trading funds at Alameda Research. Given the circumstances, she may not have had the chance.
You, however, probably do have the opportunity to work through these kinds of questions before you open positions in the live market. The Van Tharp Institute can help. Prepare yourself properly so you can trade profitably, consistently, and confidently.