For the past few weeks, we’ve been wondering what the 2022 song could be so you can enjoy being in tune with market trends.

Last week, we highlighted a jump into the early 2022 song. If you missed last week’s article, .

As you will read, this week we find some good news, but also a report on the “mother of all supply shocks!”

Over the past month, Wall Street has certainly been optimistic about the upcoming earnings season. The market, however, may tell an entirely different story.

After a significant rally in stock prices in 2021 fueled by high consumer sentiment, dovish Fed policies, huge public inflows into stocks via ETFs and historic corporate buyouts…

The market is starting to play a different tune.

Our criticism was that the Fed was overly optimistic in its view that inflation was “transitional”. We have highlighted the signs of stagflation.

Finally, the Fed is talking about changing policy. Unfortunately, they will have to adopt an aggressive policy shift to “catch up” and slow the acceleration.

It seems likely that to correct their mistake of doing nothing last year, they may need to overshoot and raise rates more times in 2022-23 than expected.

These interest rate changes will likely slow consumer demand and begin to dampen the strong consumer trend that is fueling the economic growth rate story (which has fueled rising stock prices).

A small piece of evidence supporting our view emerged in Friday’s worst-than-expected report, which reported…

“Total retail sales fell 1.9% month-over-month in December (Briefing.com consensus 0.0%)” Breifing.com eloquently summed up this unpleasant surprise as follows:

“The main finding of the report is that total retail sales, which are not adjusted for inflation, have contracted at their fastest pace since last February in the face of significantly higher prices. This suggests that inflation weighs on consumer spending.

We agree.

However, the song that concerns us even more this week is the ever-increasing disruption in the global supply chain.

Given China’s “COVID-zero” policy in general, they are beginning to lock down manufacturing hubs, including some of their most important ports.

Bloomberg wrote yesterday:

“Due to the slow movement of goods through some of China’s busiest and most important ports, shippers are now diverting to Shanghai, causing the kind of drag-and-drop delays at the world’s largest container port that led to massive bottlenecks last summer that ultimately translated into a record number of container ships waiting off the California coast, a glut that has not been eliminated to date.

See table below:

That prompted an economist at one of the world’s biggest banks, HSBC, to warn that the global economy could be heading for the ‘mother of all’ supply chain shocks.

This is becoming more widely known as companies start reporting profits and warning that their supply chains are being disrupted.

This, in turn, will likely affect stock prices as analysts lower their earnings expectations and investors reduce the multiple (earnings valuation) they are willing to pay for the stock.

Falling earnings expectations and shrinking multiples were the main factors that weighed on tech stocks in 2022.

In this environment…

We offer you these 10 suggestions for investing successfully in these volatile times…

1. Follow our weekly story.
2. Don’t follow the mainstream media when they just tell you to “buy the dips.” It may not work every time.
3. Make sure you control your position size and have some type of rules in place to sell your positions if the market moves dramatically against you.
4. Look for signs that will help you take constructive action in the market: what are interest rates doing, what is market sentiment, what is money flow like, and is it a growth environment or valuable ?
5. Diversify your holdings by including inflation hedges such as commodities and agricultural ETFs and include favorable regions of the world that you may not currently be invested in.
6. Exit fixed income investments if they are moving against you.
7. Learn how to buy hedges whether through options, inverse ETFs or investments that will rise even if the markets fall.
8. Become an Alpha Rotation subscriber and benefit from our reliable and defensive signals that will help protect you from market turbulence and significant downtrends.
9. Grow your investment using one or more of our dynamic tactical risk management models. Over time, this should help protect you against unforeseen risks in the markets and give you a long-term plan.
10. Stay alert. Get an active plan and work on that plan.

Here are this week’s market highlights from our Big View:

Risk Activated/Bullish

• The () was the only index to end the week on the upside, as its constituents are value stocks
• Semiconductors () +3.4% recovered on the week due to continued global demand associated with the Omicron variant causing manufacturers to temporarily shut down worldwide
• The McClellan Oscillator Remained Neutral Despite This Week’s Heavy Selling
• Risk gauges for SPY moved to Risk-On
• This Key SPY/Intermarket Relationship Has Upgraded to Risk-On
• Regional Banks () hit all-time highs, benefiting from higher rates going forward

Risk off/downside

Neutral Metrics

• The overriding theme this week is that energy prices () +5.0% rose sharply on expectations of winter storm Izzy hitting North America this coming week
• Foreign equities () improved against US equities as emerging markets returned to a recovery phase. However, they may be subject to a small break due to overbought readings on both price and Real Motion.