Santa rally did not materialise as we would hope although officially is not over yet, it has 2 more days to bring us presents. 2022 was by all means a rough year with bonds and stocks down. Some sectors managed to perform very well – energy XLE and commodities CRB, defensive sectors XLP, XLV and XLU managed to stay above water. The biggest losers of the year are high growth stocks ARKK 81 %, new companies issuing stocks IPO 70 %, China FXI correcting 61 % & semiconductors SMH losing 47 % then both managed a rally in Q4.
Among big three Dow Jones DJI finished a year 10 % , SPX 20 % and QQQ 35 % below peak made in January. Europe stock EU50 lost around 13 % and DAX 14 %, thus outperforming US indices, except Dow. So what can we expect from next year; FED is still hiking, inflation is still elevated and everyone is expecting recession in US in first half of 2023. Let’s see what my models and indicators have to say.
“When the time to buy comes you won’t want to.”
Walter Deemer
So let’s look at what my models have to say about current market.
Please note that my positioning is mid to long term, meaning weeks or months into the future. When I am bullish 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.
General market analysis:
I added a new indicator with which I track performance of sectors based on Weekly RSI levels. RSI Above 52 is bullish, below 48 bearish, between neutral – marked by candle colours.
Red diamond – RSI crossed below 50; Green diamond crossed above 50 – can be used as buy sell signals.
See charts for more explanations.
Longterm main models
Both longterm models are #bullish.
- Weekly Longterm model – model flashed accumulation signals based on putcall ratio in June, September and December. Another very reliable putcall buy signal was triggered in October. Data is available only since 2009 so I do not know if it is reliable in Bear markets, but in last 14 years it proved to be very reliable signal spotting bottoms almost perfectly.
- Daily Longterm model – #bullish accumulation signals – see chart.
To learn more about my models, check this link.
1. Weekly chart – Socha Investing Main model – positioning of the model is #bullish; but one should remain cautious. 
1.1 Weekly chart – Socha Investing Main model – historically reliable buy signal issued in October 
2. Daily chart – Socha Investing Main model – accumulation signals based on putcall ratio issued in last 6 days -#bullish 
2.1 Daily chart – accumulation signals based on putcall ratio since 2013.
Midterm main models
3. Daily midterm model – buy signal issued on October
Midterm daily model is #Bullish.
To learn more about Midterm model, follow this link.
New Highs New lows model
Model remains in #Bearish territory BUT breadth is improving…
SPX – A buy signal was issued in October, which was followed by a sell signal in December. Although New Lows > New Highs the gap is closing; once black and red lines cross model will turn to bullish.
See charts for more explanations.
Risk ON or OFF environment?
We are in RISK OFF environment.
Number of All charts – 8; 4 charts are Risk OFF, 1 Chart is Neutral, 3 Charts are Risk ON.
DIX/GEX (Squeeze metrix data)
Stopped using this indicator since it proved very unreliable in 2022.
Conclusion
- General market analysis – outperforming ETFs: XLE, XLV, DJI, XLI, KWEB, EU50, IBB
- Main longterm model is #Bullish
- Midterm model is #Bullish
- New Highs New lows is bearish
- We are in Risk OFF environment
It could be that market bottomed in October, there are some good signals that confirm that. On the other hand we are still in bear market, major indices QQQ, SPX, IWM are still below 50 sma weekly. Overall I am optimistic and bullish until proven otherwise.
Be cautious, stay healthy and good luck.
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