Phases & Cycles Market Outlook – Feb 08, 2022
If there was an event at the Beijing Olympics called “the best month of the year”, this January would not have made the podium!
January 2022 started as a hero, as the S&P 50 Index (SPX) reached an all-time high of 4819 on January 4th, but it was downhill from then on. During the first five days of the year the SPX declined 156 points or 3.2% and then dropped down to 4268 at mid-day on January 24th, a decline of 551 points or 11.4%. This was a true “Selling Climax”, as described in our most recent “Ron’s Brief” on January 27th.
As noted in the “Ron’s Brief”: action in the first five trading days of January and the month as a whole both appear to have a predictive value for the market, or simply: “As goes January, so goes the year”. The Rising five days together with a rising month correlate with the rise for the whole year: in the last 47 Januarys it worked 40 times (85%). However, when January declined (25 times since 1950), the outcome was only 44% and most of it occurred during a bear market. From 1953 to 2021 the average decline was 13.1%, which favorably compares with this year’s 11.4%*.
OUTLOOK
In January the SPX declined 11.4% from its all-time high of 4819 to 4268 in the shape of a “Selling Climax”, then turned around and recovered 7% to 4595 on February 2nd. During the same time, the VIX (a contrary indicator) declined from 38.93 to 20.63. These two events suggest that the correction which began in early January has come to a rest, but that the final low may yet occur and that a revisit of the 4250 area may happen again before the correction ends. A VIX’s move to about 28 followed by a decline to below 20 should herald the end of the corrective move and the resumption of the bull market.
Toronto had a smaller corrective move. The Composite Index (TSX) reached 21,550 on January 17th (not an all-time high) and declined to 19,913 (7.6%) on January 24th. It recovered faster and reached 21,419 by February 2nd. The quicker and better recovery was mostly due to the strength of the Energy Sector, which may eliminate a revisit of the January low.
*statistics courtesy of the Stock Traders’ Almanac.
PAC-20-198; MKT-501; February 08, 2022
Ron Meisels
Phases & Cycles Inc., 4000 Boul. De Maisonneuve West, Suite 2010, Montreal, QC, H3Z 1J9
Tel.: (514) 393-3653. E-mail: RonMeisels@phases-cycles.com
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