After a couple of failed rally attempts yesterday, the market completely capitulated into the close, leaving yet another sea of red. The trap door was instant capitulation built slowly but happened in a flash.

Market breadth got worse with only 35 new 52-week highs on the NASDAQ and 50 on the New York Stock Exchange (NYSE).

Market Breadth	NYSE	NASDAQ
Advancing	1,189	1,592
Declining	2,170	3,038
52 Week High	50	35
52 Week Low	302	737
Up Volume	1.42B	1.47B
Down Volume	2.34B	2.67B

The Mighty Stumble

The NASDAQ Composite entered into a correction (down 10% from the high), just weeks after establishing a record close on November 19^th.  This has happened 65 times since 1971,of which; 24 times, the index went on to tumble into a bear market (down 20%+). Therefore, 14,300 (arrow) is a very pivotal point and must hold as support now.

In recent years, the NASDAQ has recovered almost instantly from corrections.

S&P 500

Staples and Utilities returned to their traditional roles as safe havens yesterday while Energy (XLE) stands alone as the only winning sector in 2022. The index is now vulnerable to the 200- day moving average.

Bracing?

All the headlines essentially say the same thing , the market is curling up into a fetal position and paints a picture of a painful crash. But that really isn’t the case. The market is trying to calculate where stocks should be valued in a higher-rate environment. Instead of moving toward those adjustments when the time comes, the market is doing that work now.

The big Federal Open Market Committee (FOMC) meeting is next week, and I suspect the Fed will go ahead and hike 25-basis points (BPS) and pull the plug on asset purchases. 

Last night, President Biden threw the blame on the Federal Reserve for inflation while ignoring that the $1.9 trillion bill was completely unnecessary at the time. I wonder if this adds even more pressure on the Fed to go 50-basis points out of the gate. 

The question is whether the market will be a coiled spring next Wednesday or whether “smart money” takes bigger nibbles ahead of the decision. I’m not sure, but we are in oversold territory, and there will be some mighty snap-back rallies.

Keep in mind there will be names that rally 100% from yesterday’s close and still be significantly below their all-time high levels. 

Now is not the time to shrink away but to keep your head higher and on a swivel.

Portfolio Approach

There are no sector weighting changes to our Hotline Model Portfolio.

Today’s Session

Initial jobless claims popped +55,000 to 286,000 which is the highest level since mid-October.  Not sure how much Omicron impacted the number, but it does add anxiety and more questions to the direction of the economy.

Individual investor bullishness has collapse to 21.0%, which is where it was during the initial throes of Covid-19.

The Philly Fed report came in better than expected and we’ll comb through it in detail.  The market is looking to open higher, but it’s how it closes counts – more than ever.

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