Market Notebook

by | Feb 6, 2022

Discussion – 

Last week was a volatile but positive week for equities. The S&P 500, as measured by the ticker SPY, closed the week above the 200-day moving average but below the 20-day exponential moving average. While the close above the 200-day moving average is positive, the fact the SPY has not closed above the 20-day exponential moving average is slightly bearish over the short term. Ideally, the SPY would close and hold above the 20-day exponential moving average next week. The low set on October 4th, 2021, is still the critical area of price support to keep an eye on. A close below the October 4th low would likely destroy short-term market participant confidence and could set the scene for further moves lower. Given last week’s price action, the baseline scenario appears neutral to positive for equities until proven otherwise.

Bonds are established in a strong downward trend. Bond market participants appear to be squarely focused on inflationary pressures. It seems prudent to avoid bond purchases over the short term.

Facebook had a rough week last week, and it is an excellent example of what can happen to equities that are primarily priced upon growth. If equities were cars, then profits would be the fuel, and growth would be the supercharger. When the supercharger kicks in, it can make for lots of acceleration. When the supercharger sputters, it can make for plenty of deceleration. The growth, or lack thereof, at Facebook hints at significant problems with its core product and sputtering of the supercharger. It appears that the pivot to “Meta” was likely a move by management to get ahead of the problem. Facebook as an individual equity is not on any of my buy lists at this point.

Although Facebook is not on my buy list, there are growth stocks that are. Check out the value factor candidate section of the notebook for several growth names that have passed the value screen. Some names in the value factor candidate list this week are AAPL, NFLX, ADBE, SONY, and IBM, to name a few. As a disclosure, some of these individual equities are already in client portfolios, my personal portfolio, or both. I should also clearly mention this is not a buy recommendation as any of these names could be added or removed from portfolios at any time. The overall point is that potential opportunities exist. As always, when transacting in individual growth stocks, beware the power of the supercharger called growth. It cuts both ways, as noted above.

It has been several weeks since cryptocurrencies have been mentioned in the notebook. Even though crypto has seen massive volatility over the past few weeks, my position on crypto has not changed. Crypto remains a diversifying asset class for long-term investors. Beware volatility and size investments accordingly when adding crypto.

All the best.