U.S. Stocks capped their worst week in almost 2 years after choppy trading on Friday, 21^st January 2022. 

Tech shares once again bore the brunt of the selloff after Netflix reported lower than expected subscriber numbers, leading Netflix to close down by more than 20%. 

The S&P 500 closed below its 200-day moving average, a key technical level, for the first time since May 2020. 

During this interval, stocks have been under pressure so far this year after the Federal Reserve shifted to a more restrictive monetary policy path that will include interest rate increases, with the first expected in March. 

The Fed is scheduled to meet next week amid intensifying concerns about accelerating inflation that has spurred a debate on how many times the central bank will raise the benchmark lending rate in 2022. Adding this to the uneven earning announcements we have seen so far, markets are giving in to fear. 

Both the S&P and Dow closed out their third straight week of losses, down by 5.7% and 4.6% respectively, while the Nasdaq Composite plunged by 2.7% on Friday and 7.6% for the week, posting its worst weekly decline since March 2020. 

Here are the closing levels on Friday (21^st January 2022): – 

	Last	Change	%Change
Dow Jones	34,265.37.	-450.02.	-1.30%
S&P 500	4,397.94	-84.79.	-1.89%
Nasdaq Comp	13,768.92	-385.10.	-2.72%
U.S. 10Y	1.76%
VIX	28.85	+3.26	+12.74%

It was another brutal week, marking some significant technical levels. The S&P settled below its 200 Day moving average while the Nasdaq is in a correction phase and closing in on bear market phase. (Correction is considered when the price is more than 10% from its high, while bear phase is when the price is more than 20% from the high) 

If you heeded the call last week to be cautious, you may have avoided some bad outcomes. 

The volatility seen over the week whipsawing positions must have caused a lot of pain for both buyers and sellers albeit more pain for the buyers. 

It is rather unusual that most of the drop in prices came in the latter half of the trading session. 

Maybe it’s just best to wait until then to put on or take out positions. 

With the trend firmly bearish, it is hard to call a bottom just yet. 

An article from Bloomberg, is looking at the VIX inversion. It goes on to say the four inversions in the past year coincided with market bottoms. 

Thus, will the VIX inversion be the sign of the market turning? 

Right now, I would not bet on it until we get more clarity from the Fed and its plans that indicates that the market is overestimating the number of hikes along with the timing of the reduction of the balance sheet. 

Source: CBOE, Bloomberg  

This commentary is written by James Gomes 
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years. 

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