It is pretty fascinating to observe how many investors expect a stock market crash right at a time when leading indexes are printing new ATH. Sentiment is horrible going into 2022. The saying that markets are climbing the wall of worry might be right. Then again, indexes might be hiding what is happening ‘under the hood’. If anything, 2021 came with many anomalies, one of them our silver forecast invalidation while the intermarket setup was supporting much higher silver prices. Moreover, we got a really ‘this time is different’ anomaly after the Dow Jones 100-year chart broke out from a 100-year rising trendline. Will we have ‘more of the same’ in 2022? We don’t think so, here are 5 things to remember for 2022 at it relates to markets and trends.

Image Source: Unsplash

We review 5 ideas that apply to the first months of 2022. Based on leading indicators we try to understand risk and opportunity for the first one to two quarters of 2022.

Every Year Is Different

The human mind is conditioned to project the future based on the recent past.

Markets have been really fickle, and non-transparent, since mid-November of 2021. A lot of damage was created on individual stocks, much more than the indexes make you believe. Moreover, as it relates to 2021, it was a year characterized by rising indexes while the average stock came down some 20 to 30%.

The human mind registered this, and it expects more of the same in 2022. In other words, the average investor would forecast that 2022 would be similar to 2021.

Every year in markets is different, so 2022 will not be a repeat of 2021 in terms of trends.

The dynamics that dominated 2021 were rising indexes (driven by a handful of the largest cap stocks) amid declining stocks (the vast majority). What do you see on the chart of Apple? Indeed, it is now vulnerable to a decline as it is in the process of printing a topping M-pattern. The million-dollar question is whether it will drag markets down or whether the average stock will not be hit hard (AAPL).

(Click on image to enlarge)

Threat: Volatility At Elevated Levels

Our best guess is that 2021 market dynamics will be different: most stocks will continue to underperform, however indexes will be vulnerable to more volatility and, more importantly, a select few trends will bring opportunity. Market rotation will continue.

Volatility index VIX suggests that volatility is now based at elevated levels, for sure compared to a few months ago. This means that a small uptick in volatility will push the VIX index to readings around 25 points which typically pushes most stocks one level lower (on their individual stock charts).

(Click on image to enlarge)

Volatility comes with rotation. In fact, volatility is market rotation ‘in disguise’. So, investors have to pay attention to stocks and sectors that have long and strong basing patterns, and their relative strength during the next volatility ‘shock’ which is expected in January (the latest February).

In point 4 we will cover the opportunities we see.

A Rangebound Market

The nightmare scenario for investors is a flat market. It makes most investors nervous; it triggers action while no-action might be the best action.

When we look at Treasuries as a leading indicator, we see the potential for a few more rangebound months. Rangebound combined with volatility (see the previous point) is a bad combination. It is also challenging to understand which sectors and stocks will not survive this and which ones will (TLT).

Under the hood, rangebound can create damage. So, we recommend staying away from high-flyers. The most reliable setups are long and strong consolidations.

(Click on image to enlarge)

We still see indexes continue their rise on an annual basis. No crash in 2022, but overall indexes should print new ATH in 2022.

Why?

Because the Dow Jones did something really unusual in March of 2021: it cleared a 100-year rising channel.

Below is the 100-year trendline, which acted as resistance prior to the historic market crashes of 1929, 2000, 2008, 2020. This time is different, and it suggests that the big stock bull market is not over yet, on the contrary (DJI).

(Click on image to enlarge)

Opportunities: Long And Strong Consolidations

We see a few opportunities for 2022 based on the practice of focusing on ‘long and strong consolidations.’

First, green battery metals continue to look good. We focus on lithium, cobalt, graphite. The point with these minerals is that stock selection is key.

One such illustration is the current state of the cobalt sector. Again, the following charts are meant to illustrate our point of view, they are in no way a solicitation to act on it nor is the Cobalt Blue stock chart meant to buy the stock (the perfect entry was two weeks ago, not now, we did alert members of our research service as we got a ‘buy signal’).

Below is the cobalt price chart which can be tracked here. It’s a 10-year chart. What do you see? A wildly bullish reversal and there is not a lot of resistance around current levels.

As an illustration of a cobalt stock, we feature this pure-play cobalt stock ‘Cobalt Blue Holdings’ trading in Australia. Below is the weekly chart.

Everyone who can read chart reversals will agree that this is an insanely bullish reversal, not only because of the orderly structure but also of its length. A true pressure cooker with explosive potential.

(Click on image to enlarge)

Again, we are featuring this stock chart not suggesting buying this, but as an illustration of what type of market and setups investors should be focused on in 2022.

Our research has shown that out of hundreds of green battery metals stocks there are some 10 that are worth your attention, time, capital. The one thing they have in common: beautiful bullish reversals on their daily and weekly charts. The other thing they have in common: amazing growth prospects.

Here is another illustration of a long and strong consolidation: silver.

(Click on image to enlarge)

While the silver market can be violent, in both directions, we believe that buying near support levels is a good idea.

We closely track precious metals. Truth to be told gold is looking good on a long-term timeframe, silver is looking even better but the risk is always more elevated in silver so be careful and never over-invest in precious metals.

What About Crypto?

One would argue that crypto is worth buying because it is a consolidation for an entire year now.

Yes and no.

If we look at the weekly BTC chart we see that crypto is trading at a make-or-break level: a move lower will make BTC pretty bearish (a buy the dip opportunity might come but at lower levels). The opposite is true as well: a push higher might make crypto attractive (BITCOMP).

(Click on image to enlarge)

One thing is clear: 2022 will be a challenging year which is probably one of the few things that it will have in common with 2021.