Bear Volatile Market Type Market Update: October 31, 2022 By, RJ Hixson

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Part I: The World Market Model

At the end of October, the World Market Model looks pretty similar to many of the other months this year, showing mostly red and brown cells. However, UUP, the USD ETF is no longer the sole green symbol in the table as it has company from two other ETFs this month. Let’s take a look.

1125 MU Chart1

If we move around the metaphorical globe represented by the figure, we see:

  • All Asia markets are red except for India which is yellow.
  • Currencies are mostly red with a few browns. The Currency Harvest strategy ETF is yellow this month.
  • The most talked about sectors are like the rest of the model—mostly red, with a few brown cells. But, this category also includes one of the other green ETFs this month—hemp.
  • Except for DIA, US markets remain slightly negative (brown). DIA is barely above zero.
  • The other American country markets range from red in Canada to brown in Chile and Latin America to yellow in Mexico, Brazil, and Argentina. As a geographical region, the Americas ex-US has the strongest relative strength, though it’s weak by historical standards.
  • US equity sectors are mostly brown with yellow showing up. The networking ETF (IGN) leads the group with a green score.
  • Europe and Africa markets are primarily red with some brown.

In the table below, commodities, real estate, and bonds are much the same as the table above. Most are red and some are brown. The livestock ETF (COW) is the sole yellow in all three groups.

1125 MU Chart2

Two USD ETFs top the short list of green ETFs in the database. The rest of the top list has some variety with a handful of biotech and medical related symbols.

The bottom list is very, very weak. Every Market SQN score is lower than a -2. The bottom list shows weakness in Asian and emerging markets.

The weak top list and the very weak bottom list reveal the weakness in the total database. This month, 50% of the symbols are in the Very Bearish category. 88% are in Bearish or Very Bearish, which is a slight uptick from last month. No change in the 1% of Bullish ETFs but Neutral went from last month’s 8% to 11% this month. Are those changes noise or signal? Next month’s numbers will help us figure that out.

Part II: The Big Picture

What are some of the primary factors affecting the global big picture right now?

  • The USD remains strong but basically went sideways in October.
  • The US GDP grew an annualized 2.6% in the third quarter, compared with the contraction in the previous two quarters.
  • Core CPI inflation ticked up again in October to a 40-year high at 6.6%.
  • The Fed is likely to raise the Fed Fund rate again today (November 2, 2022). The consensus estimate is for a hike of another 75 basis points.
  • Meanwhile, the Fed is reducing its balance sheet by selling assets back to the market. There was much news about this topic in recent months. But, now that we are in the time zone for the Fed to step up their bond sales, actual data is harder to come by than news stories.

Part III: The Current Stock Market Type Is Bear Volatile

The S&P hit a bottom for its bear market move mid-month and rose 11% to the close on October 31. However, the Market SQN scores range from Neutral to Strong Bear.

200 days – Strong Bear (like last month)

100 days – Bear (Bear last month)

50 days – Strong Bear (Bear last two months)

25 days – Neutral (Strong Bear last month)

The strong rise over the last few weeks still leaves the downward trend intact for the moment.

1125 MU Chart3

For October, the 100-day Market SQN score stayed mostly in the Bear zone, just touching Strong Bear a few times.

1125 MU Chart4

Volatility peaked mid-month as well but remains well in the volatile range.

1125 MU Chart5

What is the divergence in the US equity indices telling us? Since the end of September, the Dow has had a dramatic improvement. A Forbes headline read, “Dow Closes Best Month in 46 Years…”. The S&P and Russell had noticeable improvements while the NASDAQ barely cut its loss for 2022 at all. Tech sector companies have been announcing lower earnings almost across the board in recent weeks. See below.

1125 MU Chart6

Part IV: Van’s Four-Star Inflation-Deflation Model

The model continued producing a deflationary result after a similar result in September and after inflationary scores for the earlier months in 2022.

1125 MU Chart7

Did you notice that BTC is higher than two months back for the first time in many months? Are we looking at a sign of life for cryptos or is it just a blip? For professional analysis, look out for Nolan Loxton’s crypto update that will be published in mid-November.

Part V: Tracking the Dollar

USD was sideways in October after hitting a multi-decade high in September. It finished the month almost on its 50-day moving average—a line it has visited several times in 2022.

1125 MU Chart8

Conclusion

Were the markets surprising last month? October can be a tricky month with many historic and famous lows. Mark Twain even referred to October as, “one of the peculiarly dangerous months” to trade. Then, he listed eleven other months belonging to the same category.

As we look ahead to November, questions abound:

  • Will the elections have an effect on the markets?
  • Yes, there was growth in Q3. But will the higher rates effect Q4 and 2023?
  • Will the Fed ease up on their rate hikes anytime soon?
  • How high do rates have to go to brake inflation?
  • Does the economy go into recession with these rate hikes?
  • Are we looking at a decade of inflation and slow growth—stagflation?

So many questions, so many scenarios to consider. What we can say right now is:

  • The S&P Market SQN score is still in Bear mode.
  • S&P volatility is still in the Volatile range.
  • The market rallied for the last two weeks of October, which could be the start of a longer-term market recovery, the start of a sideways phase, or a blip before the downtrend continues.

We don’t know what the market is going to do. We don’t predict. We prepare.

How? The best preparation for the markets comes from a holistic and iterative approach. It includes developing a Peak Performance mindset, crafting effective position sizing strategies, using a trading process architecture, mastering trading execution and continuing transformational growth. These are the components for trading excellence.* How can we help you get there?

*You can read more about the components of our Trading Excellence Model on our new webpage. Click Here.

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