Stocks struggled with overhead resistance for the past week. While seasonal trends usually favor a year-end rally, this year’s rally may already have finished.
January will be the month to watch. If the market closes with a positive January, we almost always have a strong year for stocks. But if not, we could be in for a doozy of a bear market in the first half of 2023.
This week we had more hawkish Fed talk on Wednesday, suggesting that rates will remain higher for a longer period of time. This week’s economic reports for November showed a drop in retail sales and manufacturing, which raises concern that the economy is weakening.
Falling bond yields are also hinting at a recession in 2023, as are falling commodity prices. Stock indexes look to have had an exhaustion gap higher, followed by heavy institutional selling after the CPI data came out. This further confirms my thinking that money managers are unloading shares into every rally possible before the next major leg down for stocks.
Dow Jones Index – Daily Chart
The DIA ETF has failed to break out and extend past the August high. There is potentially a long way for this index to fall before finding support at the Oct lows. The next couple of months could be rocky for the buy-and-hold-hope investors who have Stockholm Syndrome and refuse to manage risk and, by doing so, turn a blind eye to protecting their capital and retirement.
S&P 500 Index – Daily Chart
The SPY index ETF has been rejected at its falling trend line again. And while my trading strategies never use falling or rising trend lines, this goes to show how they can help you spot possibly resistance levels on the chart. I don’t show the 200 SMA on this chart, but it also is at the same level helping to act as overhead resistance.
When The Going Gets Tough, The Tough Get Out!
Having a trading strategy to follow makes all the difference in being able to see what the market is telling you so that you, in turn, can apply that knowledge to profitable trades.
Luckily, a few days ago, my trading strategy provided a market sell signal after confirming the technical analysis, cycles, sentiment, and volume flow became weak and indicated that lower prices would likely happen next.
The nice thing about following price action using technical analysis and following strict position and risk management rules is that we can avoid market corrections and profit from them at the same time.
Are you ready to try something different?
2022 has been an excellent year for those investing with the Consistent Growth Strategy alongside me using my ETF asset hierarchy allocation. This super-conservative strategy, with a max drawdown of 5.96% since 2007, packs a powerful punch with an average compounded return of 15.62% yearly. This year we keep hitting new high-water marks consistently: May, Aug, Sept, and again this week.
I recently chatted with a subscriber investor who loves how I navigate these markets and manage the positions. He said he has NEVER had any paid-for-investment advice tell him to move his portfolio to cash – which is what I do, FYI.
He then went on to say that he never realized the importance of being right out of the market and in cash at times. While he stated he does not make any money sitting in cash, he sure loved watching the markets fall without him, something equally important as making money, and has learned a HUGE lesson this year following my investing signals.
What I do is different. Many investors have extreme difficulty breaking free of the old-school thinking of always owning assets. This same investor said he has told many friends and family about this way of thinking, but they are afraid of change. And even though they are down 15-25%, they are not ready to be free of the buy-and-hold torture method.
With that said, subscribers and I entered a new position to try and profit from this next market move, and so far, things are looking as promising as always.
Chris Vermeulen
Chief Investment Officer
www.TheTechnicalTraders.com
