V2 Model April 15, 2022 UPDATE

Recap

This week, the markets ended mixed. The Russia-Ukraine conflict and its effects on inflation had added to existing monetary policy uncertainty giving market participants pause during the last two months. This week, traders added risk to portfolios in mostly large U.S. company names amid pockets of increasingly attractive equity valuations and oversold conditions.

Amid another volatile week for the markets, the U.S. major market indexes finished lower for the sixth straight week. This hasn’t happened since 2011. Many investors remain concerned over inflation’s potential impact on the economy, corporate profits, and stock valuations given the April Consumer Price Index report data released this week.

Even with a strong market up day on Friday (NYSE 92% of stocks advancing) V2 in our short position had an up week and moved into the positive territory for the year.

V2 was up this week.

Performance This Week / YTD

V2  +5.78% / +.27%

SPY  -2.34% / -15.16%

QQQ  -2.36% / -24.01%

Changes

None.

V2 Holdings (Allocation)

SDS (50%)

CASH (50%)

Charts

The first chart is the Consolidated V2 Ratio. The orange faster EMA is still below downward sloping green EMA. As such, we remain short with SDS.

The second chart is the weekly VIX (Fear) with a band of moving averages for perspective. You can see the VIX dropped this week but remains in an uptrend and above the 25 to 26 area. For markets to improve longer term we would like to see the VIX fall below this level and then below 21 for a period of time.

The next chart is of TNX - an index for the 10-Year Treasury Yield - one measure of interest rates. You can see this climbed again this week and remains above the longer-term downward trend line. You can also see relative strength has moved to its highest point in 20 years with strong upward momentum. Growth and tech stocks will have a very difficult time until this levels out or begins to decrease. Inflation will need to slow or decrease for that to happen.

Not pictured here but the number of SP500 Stocks above their 200-day moving average decreased from 35% to 32% this week. A continuing bearish signal.

Notes

I was asked a number of times this week if we have reached a bottom. I do not know. Several ratios we follow indicated we had reached an overextended area on Thursday. That point also coincided with a potentially strong area of support for the market. As such, we moved to reduce our short position on Friday. This does not mean the current downtrend is over. We need to string together more positive days. We should expect volatility. And we should not be surprised at all by a counter-trend rally (up) in the market. Time will tell if it morphs into a longer-term uptrend.

Most of our ratios are negative on the intermediate time frame. That may change, but it has not changed yet.

Plan

Our plan going forward? Market trends may change and they may change rapidly. We will stay nimble and be vigilant to changes in either direction. We will follow the math.

Distance=Victory

Chris

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