Littlejohn Financial

Self-Fulfilling Prophecy

When the market declares something should happen, sometimes it’s best not to fight the tape.
Many have called for a 4100 rally target off the lows that occurred in October. That was hit last Thursday with an intra-day move to 4100.51 for the SPX.
Now that we’ve got that behind us, the market is trying to figure out what to do for the remainder of the year. With the major price target achieved for the index, it’s likely we see a shift towards more of a stock picker’s market. Specific names that have been particularly beat up may end up looking pretty good. But there is still a more-than-decent possibility major indexes pull back from these levels.
The price target for the week is about 3940 on the SPX. That would be a drop of about 3.25% from last week’s highs. And currently futures indicate a lower open. This would admittedly make for a rough week if that were to happen.
Even more disconcerting, the price target of 3700 is not off the board either. That’s about a 9% pull-back.
Here’s how the numbers shake out. We’ve been in rally mode since October 13th. That’s 7 weeks of climb. And only 2 of those 7 weeks were down. So the trend is strong.
We’ve also seen the VIX dip below 20. This has repeatedly been the signal for a market reversal in 2022.
Unlike times past when the VIX dropped this low, the Fed has implied a shift toward more dovish policy. So it’s possible ‘this time is different.’ However, caution is the word, as we’ve already hit that 4100 number ‘everyone was talking about.’ The other thing ‘everyone is talking about’ is a possible Q1 pull-back.
Well, if you hit the target early, do you push the future into the present? Does the theoretical Q1 pull-back start now???
That may be a bit premature to determine, but the numbers suggest this week is going to have downside pressure.


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