“Do not fight the FED.”
Marty Zweig
To give you an answer, you will have to stick with me all to the end of this blog. Answer is not that clear yet and I will try to provide an answer in my analysis.
Volatility increased this week and finished the week above 30, we have not seen that since March 2020. Volatility causes bigger market moves in both directions. What seems to be the reason for recent events? At first it looked that new Sars-Cov2 variant spooked the market gods and the sell off aftzer Thanksgiving day was for sure the result of that. Afterwards Powell FED Chairman announced faster tapering and that may be the main reason why market sold off. Can we expect another plunge like we did in Marcch 2020; there is always a chance for that but I think is highly unlikely. Does this mean that pullback is over? Well, I think not yet and there are several reasons why I lean bearish for now.
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 on daily market moves.
Majority of sectors started to underperform my benchmark S&P500. Follow the links to find out which sectors Outperform and which Underperform S&P500.
This week market shuffled the cards further also in RISK ON/OFF area. How serious is it? I provide an answer here.
Longterm main models
Last week I posted “After a long time I see some changes in my Longterm models.”. Is it any different this week? Short answer is NO.
Both longterm models are #neutral.
- Weekly Longterm model – model showed an early buy signal based on sharp move in put/call ratio. By looking at the charts you will notice that in all cases since 2007 there was a lower low. It could happen next week like in 2018 or after several weeks months like in 2010 and 2014. Anyhow this signal is not enough for me to get aggressive, but for sure is a step in the right direction. Real fear is coming to the market.
- Daily Longterm model – as predicted last week, we sell off continued also this week. Nothing changed in this model; it remains #neutral.
To learn more about my models, check this link.
1. Weekly chart – Socha Investing Main model – no sell signal yet, but something for sure changed in the market – model is #neutral 
SPX chart from 2007-2021, “fuchsia” colored labels represent early bull signals. 
2. Daily chart – Socha Investing Main model – No sell signal yet, but lack of bullish signals – #neutral
Midterm main models
3. Weekly midterm model – no major change here, SPX was rejected at upper BB line.
4. Daily midterm model a rare sell signal flashed last week and was presented in last weeks blog Market sell off; what does it mean? Nothing changed from last week, model still bearish.
Midterm daily model is #Bearish. Caution advised.
To learn more about Midterm model, follow this link.
3. Weekly – Midterm model – sitting on BB mid line. 
3.1 New highs-new lows indicating market is under pressure 
4. Daily – Midterm main model – volume oscillator is in bear territory, ADV/DECL is very close to cross into bearish realm . 
4.1 This model indicated a rare sell signal (PL), which preceded some other major corrections. Short term new highs and new lows signal bearish momentum. 
PL sell signal before 2020 Market crash. 
PL sell signal before 2008 bear market and before correction in 2015.
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, XLP and TLT gained this week. Not many sectors outperform S&P500. Broader market weakness on the horizon?
See charts for more explanations.
Underperforming sectors
Market is showing more weakness I would not rush to buy underperforming sectors. General advice; stay away.
See charts for more explanations.
Risk ON or OFF environment?
Bigger changes also in this area; more and more ratios are moving towards Risk OFF environment, but not enough yet to be fully Risk OFF. See charts for more explanations.
We are currently in RISK Neutral territory.
DIX/GEX (Squeeze metrix data)
There was some Dark pools buying but not enough to trigger another buy signal. I would like to see more buy signals.
Conclusion
Midterm daily model still #bearish; other models are currently #neutral.
Some early positive signs emerged, as Daily midterm model issued an early buy signal; emphasis on early.
Majority of sectors do not looks so good anymore.
TLT broke out through resistance this week. Clear Risk Off indicator.
I moved to 75 % cash during the week. If my other models turn bearish I will go 100 % into cash.
So is Santa coming to town? He may; but we do not have clear signals that Rudolph is healthy this year.
Be cautious, stay healthy and good luck.
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