January was off to a good start; for the first day, then everything started collapsing. If you were not positioned properly and your allocations were mostly growth stocks/ETFs and technology you had a rough month. QQQ corrected 17 % intraweek low, SPY lost 12.3 % while growth ETFs lost even more; ARKK 33.7 %, QQQJ 18.7 %, IPO 30.6 % and SMH lost almost 22 % in January alone. For sure this pullback can be already called correction and it is not unusual for stocks to correct 10 % or 20 % in strong bull markets. On the contrary years without 10 % pullback are very rare.
“When the time to buy comes you won’t want to.”
Walter Deemer
But not all sectors/regions corrected; Energy XLE gained almost 21 %, Latin America ILF gained 12.5 % and Brasil EWZ gained almost 20 %.
So correct positioning or being in cash were the best strategies for January. But what caused this? To be honest I do not care, but on the other hand I cannot avoid mentioning FED’s Hawkish positioning by announcing rate hikes and Quantum Tightening. Do not fight the FED said Marty Zweig. Does this mean we are heading straight to bear market? That is always a possibility but I do not think so. For more information about how markets perform during initial FED hikes follow @CiovaccoCapital or @RyanDetrick on Tweeter. They provide great insight about stock market.
So let’s look at what my models have to say about current market.
Please not that my view is mid to long term, meaning weeks or months into the future. When I am bullish markets it does not mean that next few days cannot be red or vice versa when I am bearish. In majority of cases I adjust my portfolio on weekly bases trying to filter out the daily noise. Only rarely I adjust my positions based just on daily market moves.
Longterm main models
Both longterm models are #neutral; BUT…
- Weekly Longterm model – model flashed two early buy signals due to sharp move in put/call ratio. The first one appeared on the last week of November and as mentioned in previous blog post, first signal was never the low. This time it took 7 weeks for SPX to make lower low, something similar happened in 2010, 2011 and 2014. Anyhow this signal is not enough for me to get aggressive, but for sure is a step in the right direction. After a long time we can see some real fear in the market but is it enough?
- Daily Longterm model – #neutral. SPX closed just below 200 SMA. See chart.
To learn more about my models, check this link.
1. Weekly chart – Socha Investing Main model – positioning of the model is #neutral; but one should be very cautious; a lot changed in December and January under the surface. 
2. Daily chart – Socha Investing Main model – No sell signal yet with a lack of bullish signals – #neutral 
SPX chart from 2007-2021, “fuchsia” colored labels represent early bull signals.
Midterm main models
3. Weekly midterm model – bullish weekly candle, must wait for confirmation.
4. Daily midterm model a rare sell signal flashed in the last week of November; I wrote about it in blog Market sell off; what does it mean? After that we saw a formidable run to new highs, which resulted in a 12 % correction in SPX. This week we received a confirmation sell signal 5 days in a row; signal is based on Advance/Decline.
Midterm daily model is #Bearish. Caution advised.
To learn more about Midterm model, follow this link.
New Highs New lows model – NEW MODEL
Model is #Bearish. Caution advised.
In the last month I have been working on a new model based on New highs and new lows for NYSE and Nasdaq. This model tells you what is going on under the surface; breadth.
See charts for more explanations.
QQQ daily (Nasdaq); despite strong close on Friday; New lows exceeded New Highs by a big margin. No time to get aggressive yet. 
QQQ weekly (Nasdaq); does not look very healthy; a lot of sell signals. New highs new lows reaching extreme panic levels; before being very aggressive I will wait for clear buy signal – black triangle. 
SPX weekly (NYSE); looks better than Nasdaq, but getting weaker by the day. Longer term New lows are in warning territory, careful.
Outperforming/underperforming sectors
Trend strength indicator:
I added a new indicator with which I track performance of sectors. Second panel from bottom up. Purple line represents trend strength of underlying symbol; while orange line represents relative strength vs. S&P 500.
If both lines are moving higher and they stay in green area this is bullish; the opposite is true if both lines are moving lower and end in red area.
Green triangle: Strong absolute trend – Bullsih
Black triangle: Strong absolute and relative trend – Very bullish
Red triangle: Weak trend strength – Bearish
No sign: Neutral
Outperforming sectors
Defensive sectors XLU and XLP outperformed SPX; other defensive sectors like bonds TLT and Gold GLD are still weak, buyers still prefer stocks over “safe” assets. Not many sectors outperform S&P500, only energy XLE and Latin America significantly outperformed SPX. Broader market weakness.
See charts for more explanations.
Risk ON or OFF environment?
We are in RISK OFF environment.
DIX/GEX (Squeeze metrix data)
The only buy model I have in the entire collection of models is DIX/GEX data. Is it still reliable? I do not know, recent buy signal at the top failed. New buy signals showed up this week, let’s wait and see.
Conclusion
Main longterm model is #Neutral
Midterm model is bearish
New Highs New lows is bearish
DIX/GEX model is bullish.
Staying defensive or in right sectors like XLE and ILF/EWZ is the best position for now.
Some early buy signals emerged; emphasis on early.
Majority of sectors do not looks so good anymore.
I am 20 % in cash; rest is in energy, Latin America & Europe
Be cautious, stay healthy and good luck.
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