Wealth Watch: A Negative HCM-BuyLine® Means Watch out for Bear Traps!

February 01, 2022

From the desk of Vance Howard:

The HCM-BuyLine® went negative last week for the first time since mid-February 2020, during the beginning of the pandemic. We are about 30-50% in cash and very short-term bonds. We were scaling out last week trying to take advantage of any rally the market would give us, of which there were not too many. The bears currently have control of the market and preservation of capital is the name of the game.

The NASDAQ is trading below its 200-day moving average, but the S&P 500 is just above the 200 DMA. Not pretty chart patterns. We do expect a rally for a few days, but then we expect the sellers to show back up.

What was support now turns into resistance. On the S&P 500 resistance is about 4500 and on QQQ resistance is around $365.00. Look for volatility and a downward bias. If 4270 on the S&P 500 is broken 4060 is the next level of support.

Be very carful of these rallies, because as long as the HCM-BuyLine® is negative they are most likely bear traps. There are a lot of things that need to be monitored, such as very high inflation, and rising rates, but one in particular that needs to be monitored is the standoff between Russia and the Ukraine.

Are we headed for a bear market or is this just a very nasty correction? Only time will tell, but for now the trend is down and fighting the trend can be very expensive and painful. We will let the market base out and when the HCM-BuyLine® turns positive re-enter.

Vance Howard

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