Macro Dashes – Could 2022 Look Like 2018?

The stock market is starting to react in the that I warned it probably would to the Fed’s QE Taper. Slightly lower liquidity has already caused more volatility. 

TradingView Chart

Between now and year-end, I would expect volatility to continue. That’s not all bad, we should see very attractive prices again on some of our already appreciated stocks [think Ford (F), (LSXMK), (MP), (SPWR), (BRK.B), (TAN), (ARKK)…] and larger quality companies that we want in our portfolio [think (MSFT), (GOOG), (AAPL), (SOXX), (QQQ…)], but we likely have to wait until next year for bottom fishing prices. 

If we do see the 2018 scenario, that will also open a window for a trade: buy early year, sell mid-year, buy again for the long-term. 

Overbought & Overvalued Is Back

Back in August we got to a point where stocks were both overvalued and overbought. And really, overvalued never really left, it just barely paused.

Here’s the S&P 500 (SPY) (VOO) valuations of large caps:

Composite Valuations

Here’s the Warren Buffett take:

Here’s a small portion of the overbought weekly RSI going through the roof again, just our VSL: 

Here’s the entire S&P 500: 

What you’re seeing is that nearly 100 stocks are already overbought. What you’re not seeing is that there are another 100ish that are close to overbought. 

Here’s a crazy stat. 411 stocks on the S&P 500 are over their 200 day moving average. That NEVER happens. 

So, the markets are historically overvalued and historically overbought. Does that mean it can’t go up a bit more? Nope, it sure could. 

But, a simple reversion to mean would mean nearly a 50% correction in large caps. I think this explains at least some of the rotation to small and mid caps the past few months. 

And, also think about this. We are seeing record margin and call volume.

Here’s what I can tell you having seen reactions to 2000 and 2008 valuations and overbought markets. The end result won’t be good for a lot people. And, as calls expire worthless and margin calls come in, the fall in prices can be every bit as severe as March 2020.

It would not surprise me to see all but the very best companies go back to somewhere around Q1 2020 prices.

There’s a lot of good arguments to the S&P 500 going down to the middle $300s. I think a price under $400 is all but assured sometime in 2022.

There’s a possibility that if the Fed over tightens that we see the S&P 500 under $300 again.

TradingView Chart

Trading Is Hyperactive Already

I get volume alerts from Stock Rover every day. I monitor about 300 stocks that have passed some sort of proprietary screening or got my interest for a hot minute somehow, as well as, about 150 ETFs. 

My alerts not set low. For a stock to trigger an alert, it has to have 70% more volume than average. For an ETF to trigger an alert, it has to have 30% above average volume.

Usually there’s 2 to 4 emails per day with from 1 to 5 alerts each. Today there were 5 emails and a total of 46 alerts today. Here’s an example of the last email of the day [I removed many of my tracking parameters to shorten the excerpt]: 

You have 46 new alerts. Only the first 10 are included below. Login to Stock Rover to see the full list.
SNEJF in VSL+’s volume at 2,655 exceeded the 1 month average volume by 83.36%.
The alert triggered on Thu Nov 18, 2021 at 12:48 PM ET.
TDOC in VSL+’s volume at 5,026,925 exceeded the 1 month average volume by 75.66%.
The alert triggered on Thu Nov 18, 2021 at 01:00 PM ET.
INDS in ETFavorites+’s volume at 70,383 exceeded the 1 month average volume by 35.60%.
The alert triggered on Thu Nov 18, 2021 at 01:12 PM ET.
GH in VSL+’s volume at 1,465,049 exceeded the 1 month average volume by 73.50%.
The alert triggered on Thu Nov 18, 2021 at 01:12 PM ET.
EMQQ in ETFavorites+’s volume at 223,500 exceeded the 1 month average volume by 36.46%.
The alert triggered on Thu Nov 18, 2021 at 01:35 PM ET.
LSXMK in VSL+’s volume at 1,069,920 exceeded the 1 month average volume by 72.41%.
The alert triggered on Thu Nov 18, 2021 at 02:03 PM ET.
U in VSL+’s volume at 7,082,013 exceeded the 1 month average volume by 74.41%.
The alert triggered on Thu Nov 18, 2021 at 02:18 PM ET.
KWEB in ETFavorites+’s volume at 18,610,160 exceeded the 1 month average volume by 35.06%.
The alert triggered on Thu Nov 18, 2021 at 02:18 PM ET.
NVDA in VSL+’s volume at 64,277,716 exceeded the 1 month average volume by 71.21%.
The alert triggered on Thu Nov 18, 2021 at 02:29 PM ET.
APSG in VSL+’s volume at 506,482 exceeded the 1 month average volume by 70.16%.
The alert triggered on Thu Nov 18, 2021 at 02:29 PM ET.

Stock Rover

It went on and on. So, that’s about 4x more volume alerts today than normal. Wow. Some of that has to do with options expiration, but it usually doesn’t bump this hard.

So, here’s a question given that a lot of calls are very short-term in nature for traders: if many stocks trade below call strike prices Friday, does that drive a spiral down as margin calls might get triggered Monday?

Maybe not this time, but I think eventually. The volatility is already hitting certain stocks hard.

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