December 2021 Observations – technical whipsaws

As was mentioned last month in this space, December is usually a good month and for the SPY it was as the index rose 2.82% for the month.  For the retirement ETF fund where trades are made based on where the stock closes at month end relative to its long term moving average, however, it was a lousy month.  


Why lousy?  At the end of November it signaled SELL of XLP, XLV, XLU, VNQ and FDL.  And then it proceeds at the beginning of this month to signal BUY of XLP, XLV, XLU, VNQ and FDL.  These are called “whipsaws” in the technical field and are a traders worst nightmare.  I was a bit cautionary at the end of the piece last month saying in effect “well don’t overreact and just watch your portfolio allocations — don’t do anything rash”.


When you are only taking a look at your portfolio monthly it helps to be in a directional market.  When there are a number of tickers that are jumping around their long term moving averages it generally means that buyers and sellers are competing to control market direction.  It is hard to follow a “system” at a time like this.  Trend following systems can be brutal in market consolidations.  It sucks the soul right out of you.  Makes you question your (technical) religion.  Makes Dan Miley’s fundamental based, long term perspective look a hell of a lot better than this technical stuff.


But, alas, I have not given up completely.  These are strange times.  Stranger than normal.  The economic, political, and media cycles have accelerated well past our simple “every month end” technical perspective.  So from time to time we will zig and just a few days later the market in its infinite drunken wisdom will zag.  A month may end with a net increase of 2.82%.  But the drunken walk that it took to get there can suck the life out of a simple investor like me.


I ended the year with too much cash.  I started the year last year with too much cash.  I have been told that is really a bad thing, but my cash waits patiently for a nice market dip so that it can be invested wisely.  I will dip my toes with some of that cash into a few of Dan Miley’s Growth and Income picks from a few days ago — check his note on January 3rd.  His picks seem at this point more reliable than anything I can conjure up technically.  What I do know is that inflation, labor shortages, COVID complications, political intrigue, and increased regulation are going to put pressure on this market.  So my cash waits patiently for a few dominos to drop and the smart money to rush in.   

Leave a Comment