Technical Review, Global Economic Report

Tactical Strategy

The cornerstone of my Tactical Strategy is the intersection of Economic Fundamentals, Monetary Policy, and Technical Analysis. Combining fundamental and technical analysis has helped me implement an effective Tactical Strategy. This combination was particularly effective in 2022.

Below is a recap of the Tactical Investment Advice I provided primarily in the Weekly Technical Review. As you read this, you can reference the above chart to match the comments and price levels of the S&P 500 at the turning points cited.

Tactical Investment Advice in 2022

In the December 2021 Macro Tides a decline of more than 10% was expected in the first quarter of 2022, as the FOMC became less accommodative and the 20 year cycle timed another important trading low. “The stock market could be vulnerable to a correction of -10% or more in the first quarter if markets expect the FOMC to move more aggressively in the first half of 2022. The stock market has experienced a large decline every 20 years going back to 1903. The next resolution is due in 2022 so being aware of this cycle is necessary. The smallest decline was -28.0% in 1962 with 4 of the cycle bottoms occurring after the S&P 500 had fallen by more than -34.0%. A decline of this magnitude is not expected but makes a correction of 10% or more seem probable.”

In the January 24 WTR investors were advised to add to equity exposure if the S&P 500 traded below 4150 which it did on February 24. In the April 4 WTR investors were advised to lower equity exposure as the S&P 500 was trading near 4600. On April 22 the daily Major Trend Indicator closed back below its red MA, confirming a bear market. This increased the odds that the S&P 500 would trend down to 3850 which it did on May 20.

In the May 20 WTR Special Update investors were advised to add to exposure on May 24 in anticipation of a rally to 4150 – 4200 for the S&P 500 and 1850 – 1870 for the Russell 2000. The S&P 500 traded down to 3875 on May 24 and the Russell fell to 1731. The S&P 500 traded up to 4178 on June 2. In the June 6 WTR investors were told to sell a portion of the Russell 2000 above 1903 (traded up to 1920 on June 7), and if the S&P 500 traded above 4200. The S&P 500 failed to rally above 4200, but triggered the stop at 4076 on June 9.

In the June 22 WTR I noted that the market was oversold and a rally to 3850 – 3900 was expected. The S&P 500 rallied from 3765 on June 21 to 3946 on June 28. In the July 5 WTR the expectation was that the S&P 500 was likely to rall y above 4000 in Wave C of an A-B-C rally from the mid June low. The S&P 500 traded up to 4012 on July 21. In the August 8 WTR a breakout in the Nasdaq 100 (QQQ) was expected to lift the S&P 500 to 4300.

The S&P 500 was expected to really on the July CPI report on August 10 and then reach an important high, which was discussed at length in the August 15 and August 22 WTR’s. In the August 15 WTR I discussed why it made sense to lower exposure with the S&P 500 trading above 4300. The S&P 500 rallied to 4325 on August 16 before reversing lower.

In the September 19 Weekly Technical Review a decline to the June low was expected after any bounce in response to Chair Powell comments after the September 21 FOMC meeting. “Unless Chair Powell throws the market a glimmer of hope, the FOMC projections and Dot Plot could hurt, as the FOMC lowers the estimate for GDP growth, increases its estimate for Unemployment and inflation, and indicates that the Fed Funds rate is going higher for longer.” The S&P 500 could rally to 4150 – 4200 in the next few weeks. Once this rally is complete, a decline to the June low of 3637 is expected.The S&P 500 fell to 3586 on September 30.

In the October 13 WTR Special Update, the S&P 500 was expected to pullback to 3580 after rallying to 3712. The S&P 500 declined to 3580 on October 14. In the October 17 WTR the S&P 500 was expected to rally above 3807, which it did on October 24. In the October 31 WTR, investors were advised to raise cash with the S&P 500 trading near 3900, in anticipation of a decline to 3698. Another buying opportunity was expected after the S&P 500 declined in response to a hawkish message from Chair Powell on November 2. The S&P 500 bottomed at 3698 and then rallied. In the November 14 WTR investors were advised to lighten up if the S&P 500 traded above 4009. On November 15 the S&P 500 jumped to 4028 before dropping to 3906 on November 17. In the November 21 WTR I noted that the period just before Thanksgiving is usually a favorable seasonal window that lifts the market. The S&P 500 was expected to rally above 4028 which it did on November 23. Investors were advised to Lighten Up if the S&P 500 traded above 4100 which it did after the good November CPI report on December 13.

Jim Welsh
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