It's Been a Doggone Hard Investment Year
Looking Back and Into The Future

January 1, 2023

Weekly Market Outlook

By Keith Schneider and Donn Goodman


Gaugers, all of us in the MarketGauge family wish you a healthy, happy, and peaceful New Year with much prosperity as you start 2023. Thank you for reading our weekly Outlook. We are pleased to have you involved with us.

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Potential Positive

After a bad year, there is a high probability that the next year may be positive. While we are not expecting this to occur, especially with lingering high interest rates and a hawkish Fed, the statistics nonetheless may bear out. Two negative years in a row is very rare. See the chart below:

For 2023 we remain optimistic. But as someone once shared with me, "Hope for the best but expect the worst." So we offer one positive chart that we hope turns out to be accurate:

A few days ago, one of our avid readers contacted me. He wanted to let me know that our commentary over the past few months had kept him from making some potential big missteps. Especially important was the warning about not getting too exuberant in October when we urged patience and not to be overly aggressive. He mentioned that the Big View bullet points suggesting we were getting close to a "RISK OFF" condition in our Alpha Rotation model were the reason he decided to sit on the sidelines.

I appreciate his candid and sincere comments. However, I want to remind (him) and all of you that we started warning about what lay ahead as far back as in the fall of 2021 and early 2022.

Our guidance and advice were spot on. As I pointed out to this new reader, we began forewarning a long time ago. Just to review some of the articles (you can go through the archives and read these articles again):

November 21st, 2021; "Something Stinks": We addressed that the market internals and several of our gauges looked like we were going to have difficult times ahead. This was well before the downward sell-off began in January 2022.

January 30th, 2022; "A Wild Ride":  The market's volatility was beginning. We gave 6 suggestions to handle the swings with a prognostication that more difficult times were ahead.

March 20th, 2022; "Walking the Tightrope. How to Adjust Your Portfolio to Manage Rising Rates and 8 Steps to Protect Your Portfolio: We began in earnest to encourage you to "step aside," raise cash, use hedges, and consider inverse ETFs.

April 24th, 2022; "Do You Have an Investment Drawbridge?": We spent the better part of the Outlook conveying the message about how you could create your own investment moat and protect your investment portfolio. We began the mantra of "sell your stocks with big gains and pay taxes." The lesson from 2022 is it is far easier to pay the IRS (if you had to) then pay the market tax, which can be a major dissipation of capital from a decline in stock prices. I bet many of our subscribers with long-term gains in the big well-known cult stocks wish they had taken some of their profits off the table now.

May 22nd, 2022 "It's Been a Rough Ride! 8 Ways to Smooth Out The Ride”: The ride was starting to get rough, volatility was spiking, and we reiterated what we said in March with the added caveat, which we repeated over the year, "if your Advisor will not let you raise cash and move to the sidelines, get someone who will."

You get the point. Our suggestions and this defensive commentary continued throughout the year. We urged people to sell stocks, raise cash, reevaluate their holdings, use inverse ETFs and watch our risk indicators. We also encouraged people to shift money over to several of our investment strategies that were working best. Several of these strategies ended the year down just slightly. Our newest (revisions) and offerings GEMS and Large Cap Leaders, held up very well, with the latter having a better than 4% return for the year. Even through the ups and downs.

Introducing the TAD Blends. TAD is our newest character added to the MarketGauge family. We will be telling you much more about the TAD Blends, in the near future. Just know that TAD (Tactical, Adaptive and Dynamic) is about helping you choose a blend of our investment strategies that you can trade or can be traded for you through our TAD (Totally Auto and Dynamic) investment platform, which is linked and teamed up with Interactive Brokers. More to follow or reach out to Rob Quinn for additional information.

A Look Forward

Personally, I do not feel capable, yet, to make any predictions about the economy and the bond and stock markets. For now, I think we should leave that up to the Gurus like our own Mish Schneider. Mish is putting the finishing touches on her 2023 Outlook. This mini-book is intended to prepare her readers for the economic backdrop we are likely to experience and suggests investment ideas to survive and thrive in 2023.

If you'd like to be among the first to receive a copy of Mish's 2023 Outlook, click here to get on the waiting list.

Just a reminder that Mish absolutely nailed the economic landscape for 2022 over a year ago. Her insights that we would see the emergence of a positive commodity cycle led her to recommend to her Mish's Market Minute Premium subscribers some outstanding picks during the year, including Natural Gas (UNG), Agricultural ETFs (WEAT), Silver (SLV), Copper (COPX) and various other interesting ideas (including EV stocks).

How Will 2023 Play Out? (16 predictions)

I scoured many of my sources for some interesting predictions and came up with a few that I thought were worth repeating (and may differ from what we at MarketGauge think possible):

  1. The U.S. Economy will grow at 0.5%-1% pace, a drop from 1.5%-2% in 2022, and there will be a mild recession near the end of the year. (JP Morgan)
  2. Bitcoin will decline to $5,000. (Standard Chartered)
  3. Inflation will decline to 4%-5% by May, but it will take much longer to bring down to the 2%-3% Federal Reserve Target. (Mihi Desai, Harvard Business School)
  4. Big brands will begin to push startups out of the cannabis industry. (Venture Capitalist Bradley Tusk)
  5. Most self-order kiosks at restaurants will be replaced by mobile ordering apps. (Nation's Restaurant News)
  6. The S&P 500 will decline again, in what is the first negative aggregate prediction tracked by Bloomberg since at least 1999. (Bloomberg)
  7. The stock market will improve after an early sell-off in the year. (An aggregation of strategists)
  8. Real estate will be a "nobody's market" with high priced homes and limited options. (Danielle Hale, chief economist at Realtor.com)
  9. The NFL will announce two expansion teams, both will be in Europe. (Tyson Webber, GMR Marketing)
  10. NFT's will make a comeback, but only as a way to authenticate another object. (CoinDesk)
  11. Investors will stop craving "hockey stick" growth and prioritize profits. (Entrepreneur)
  12. Self-driving cars will make a real impact, but mainly from use by local governments. (Venture capitalist Robert Ravanshenas)
  13. Netflix will merge with Disney or Paramount to create a mega-streamer. (CNBC)
  14. Media will untether from Twitter. (Casey Newton)
  15. Malaga, Spain will be the trendiest travel destination, followed by Sydney, Australia (Airbnb)
  16. More investors will turn to MarketGauge and Mish Schneider to make their investment decisions. TAD Blends will become the standard to which other investments are evaluated. (Donn Goodman)

Again, we hope 2023 ushers in new opportunities, memorable experiences, and positive investment results for you and your families. Thank you for following us. We look forward to continuing to serve your investment needs in the New Year and beyond.

 

Here are this week's bullets from Big View:

Risk On

  • The 52-week new high-low ratio for the NYSE and NASDAQ both indicate a little improvement. (+)
  • Volatility is easing, and even with the market down, the VIX closed in a bear phase which is bullish. (+)
  • Value Stocks (VTV) continue to outperform Growth Stocks (VUG). Watch the price of VTV closely. It is trying to establish a bull phase. It made a golden cross and closed exactly at its 50-day moving average (140.37) on Friday. (+)
  • The Euro and the Yen both gained against the US Dollar, and the dollar closed at its lowest level since June, but has found support for now at the 50-week moving average. (+)
  • Biotech (IBB) remains in a strong warning phase closing at 131.29, only slightly below the 50-day moving average of 131.52. (-)

Neutral

  • Three of the four US indices have positive TSI, but three indices are also in bear phases. The only US Index displaying technical strength is DIA which closed on Friday at 331.33, slightly below its 50-day moving average of 331.98 and is in a warning phase. (=)
  • The McClellan Oscillator is still in negative territory for the NASDAQ and NYSE. The McClellan Oscillator's overall negative reading has improved marginally. (=)
  • Risk Gauges have improved to a weak neutral reading. Stocks outperformed bonds throughout the week, which contributed to the improvement. (=)
  • The percentage of stocks on the SPY and IWM above their 200-day and 50-day moving averages fell slightly, while the number of stocks above shorter-term 10-day MA has improved significantly. (=)
  • Large Cap (DIA) continues to lead over small (IWM) and mid-capitalization stocks (MDY). (=)
  • Foreign equities  (EFA) continue to outperform US equities, with EFA's closing price of 65.64 needing to continue to hold above its 200-day moving average of 64.84. (=)
  • Emerging markets (EEM) continue to outperform American markets, but EEM is losing ground to EFA. (=)
  • Gold has broken out above its 6-month calendar range and 200-day moving average, while Oil has moved into a strong recovery phase and will turn bullish if it can continue to hold above its 50-day moving average. (=)

Risk Off

  • This week's volume patterns deteriorated further. During the past two weeks, there have not been any accumulation days on the NASDAQ, and there were more distribution days than accumulation days for all US indexes. (-)
  • Energy (XLE) saw growth of 3.7% over a quiet holiday trading week, while all other sectors were relatively muted. The only sector to have positive returns for 2022 was Energy (XLE) returning 57.6%. (-)
  • Precious Metals, Miners, and Oil Services (energy-related) are trending higher, with Natural Resources and Industrials closely following.
  •  The counter-trend rally in the TLTs appears to be over. (-)
  • The yield curve is still inverted but has moved away from more extreme inversion levels. (-)
  • Growth Stocks (VUG) are in a bear phase. (-)
  • Five Modern Family members remain in bear phases. (-)
  • DBA (soft commodities) is still outperforming the S&P 500. (-)


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