Date: January 31, 2022

Here’s The Bounce

What a nice turnaround on Friday! One person I read attributed it to “everyone” not working because of the impending blizzard on Saturday. That was a new one for me after 32 years in the business. In the summer, those same people blame The Hamptons for August declines. Now we’re crediting Mother Nature with rallies. Oh boy.

Anyway, I have often written that Friday bottoms are not to be trusted and that they’re rare. However, can we really say Friday was a low when the Dow Industrials, S&P 500 and NASDAQ 100 saw their lows last Monday? Only the S&P 400 and Russell 2000 made new lows on Friday. And those two indices are supposed to bounce the hardest.

In between freezing my rear end off in Vermont with windchills -20 to -30 and watching two absolutely amazing football games, I did manage to put in a fair amount of work on where we are in the decline and what a few scenarios might look like. I don’t have time this morning to share, but I will do so as soon as possible. Renee booked my January calendar so tight that I need another pair of eyeballs and hands to stay current.

In short, last Monday still looks like the internal or momentum low for the decline where the most stocks see the most damage. I already posted charts on the number of stocks making new lows as well as how the usually wrong options crowd is positioning. There is more to come. The bounce was late to start and on the feeble side so far. That tells me to sell rallies for now, especially in things I own but do not love.

I see some really amazing opportunities setting up, but patience, one of my themes for 2022, is required.

On Thursday and Friday, we bought XLY, more DIG and SOXL and hedges in SPXS and RYTPX. We sold UCC, FREL, VGK and EEM.


Paul Schatz, President, Heritage Capital