Welcome to 2022. The NAS closed out 2021 consolidating in a wide range 1000 point range just below the all time high made in late November. Price was bound by the 16500 and 15500 levels above and below with neither the bulls or bears able to able to start a new trend outside this range. The choppy price action was in tune with a convoluted stream of news and data points. Increasing inflation, fed tapering and Omicron vs a strengthen economy, seasonal trends a belief that the worst may be over.
Going into the new year inflation will likely remain the strongest driver of the news cycle. Omicron appears to be mild, but it is still causing governments around the world to continue restrictions and force disruptions to the supply chains ect. This fact coupled with a world still hungry for products will continue to increase inflation pressures. The key narrative is still about the Fed and whether or not Powell can continue to thread the needle of tightening policy, but gently enough to keep the market happy.
Typically new money flows into the market at the beginning of the month/year and tax loss selling is finished so the market may get a lift from that. The question however is where the new money will flow to. Towards the end of the year small cap tech and growth names continued to get hammered and the mega caps continued to dominate as well as dividend paying stocks. Many of the stalwart dividend payers closed the year near 52 week highs. Names such as KO, MCD, PG, WM ect. all made momentum stock type moves into year end. I would expect this trend to continue until the inflation narrative changes.
Looking at the NAS specifically we have 3 scenarios in play. Either price breaks out to new highs, continues to move within the large range or breaks down and takes out the Dec 20 low. The levels I will be watching are the top and bottom of each of the boxes on the chart. The posture remains bullish above the tan box and bearish below. Confirmation of a new trend does not happen until price breaks above the red box or below the green box. Don't be surprised to see choppy markets until the new data comes out later in the week. I will update the charts as price action plays out.
Themes to watch for 2022
OIL/RESOURCE sectors reaction to supply demand constraints
Interest rates
Rotation from mega caps back to growth
Continued strength in defensive plays like dividend stocks
Build Back Better
Labour pressures (ie no one wants to work a regular job anymore)
US/CHINA/RUSSIA tensions
Social Unrest
Weekly events
Tuesday... US Manufacturing PMI
Wednesday... Crude inventories & FOMC minutes
Thursday...US ISM Non-Manufacturing PMI, Initial jobless claims & Factory orders
Friday... Unemployment rate & Non-Farm Payroll.
Bullish notes:
Santa rally continues (First 2 days of NY)
Beginning of the year/month inflows
Strong TSLA delivery #'s may boost NAS
Bearish Notes:
Still massive covid #'s getting reported
Inflation is still a thing
Market running out of upside catalysts
Market continues to price in tapering/interest rate hikes
Comment:
Rejected at the top of the range and dropped the past 2 days. Paused just briefly at the top of the neutral. Looks like price wants to test the bottom of the range again. Needs to bounce there or things will get ugly. Still a good chance this sideways range continues for a while however.
