Date: December 10, 2021

Bulls Best Not Fail Here

After two strong days for the bulls, the stock market took a breather on Wednesday and Thursday with the now important Consumer Price Index scheduled to be released on Friday morning. It should be a market mover and I am most keen on seeing reaction from long-term treasuries. Although it is a powerfully bullish time of year and the bulls certainly proved their mettle off of the recent lows, it would be significantly bearish for stocks to fail right here and rollover.

While I am not one who believes in absolute, to the penny price levels of importance, I do believe that the major stock market indices need to exceed this week’s highs sooner than later. And that’s not a huge rally nor tall order. Failing here opens a scenario for a much deeper market decline and one that could see the largest magnitude since the 2020 bottom. I am not forecasting it. I am not positioning for it. I am just sharing info as it becomes available.

The Dow Industrials and S&P 500 are the strongest indices with the S&P 400 and Russell 2000 as the weakest. I would like to see that reversed, especially when the mid and small caps are supposed to be leading this time of year. That concerns me for 2022. On the sector front, semis just scored a fresh new high which is great, however, banks behave poorly. High yield bonds saw a significant decline for that group into the recent low and then thrust powerfully from there. They need to hang in and not roll to the downside again.

Over the last two days we sold all of our banks and financials and some of the NASDAQ 100. We added to energy and semis and bought some high yield bonds and the Dow Industrials.


Paul Schatz, President, Heritage Capital