2022 has been a year of insane volatility for the stock market with the major factors being Russia's invasion of Ukraine, inflation, and a hawkish Fed. The S&P 500
There remain several headwinds, and the market is likely to remain choppy for a considerable period of time, absent some improvement in the Ukraine-Russia situation. However, there are some positive developments under the surface that investors should acknowledge and appreciate.
Plunging Coronavirus Cases
The major story of 2020 and 2021 was the coronavirus and waves of new variants with the last one being omicron. At the end of January, new cases peaked at above 900,000. Currently, they are around 40,000. This is a substantial improvement. Understandably, the market is focused on other issues, but travel stocks have been outperforming on shorter-term timeframes. And, if the market can bounce or rally, this sector should outperform.
The Stock Market is a Discounting Machine
It's easy to focus on the negatives, but one silver lining is that we aren't really down as much based on increasing inflation and geopolitical risk. In a contrarian sense, this is bullish.
In fact, the market bottomed on January 24 at just above 4,200. Since then, the market is only 0.5% below these lows despite the torrent of negative news. The handful of times that we probed below these levels, the market quickly found a bid and rocketed higher.
Thus, traders and investors should use these lows as pivot points and get aggressive above these levels. This is a trade with nice upside but very low downside given current proximity to these levels.
Selling Momentum May Be Drying Up
This is kind of a corollary of the previous point. The market made its initial low on January 24. Since then, it's broken below these lows twice. Each time, there was much less selling momentum in terms of the number of stocks that made news lows. This is an indication of improving market breadth.
On its own, it is not sufficient to guarantee that the market will move higher but in concert, with the above improvements, it does increase conviction that the worst may be over.
