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The 23-Month Moving Average “Tell” for 1st Quarter

March 29, 2023

Mish's Daily

By Mish Schneider

We have written lots of Daily’s, not to mention, talked a lot about on media, the significance of the 23-month moving average.

Here are some past comments:

What has happened in the last 2 years? A bullish run in 2021 based on easy money. Inflation running hotter than most expected.

The banks were caught off guard, and by 2022, the party was over.

So, that begs the question of why this year’s 23-month moving average is one of the most important indicators for equities.

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In general, the business cycle consists of four distinct phases: expansion; peak; contraction; and trough.

And it takes about 4.7-5 years to run through the cycle.

However, in the spirit of our new paradigm, or rules that are square pegs fitting into round holes, we must ask:

Was Covid the trough?

Was the expansion in 2021?

The peak January 2022?

The trough in October 2022?

And now, 2 years later, expansion again?

No need to stress about that-we just need to watch the charts.

With only 2 more days until the end of the month and the quarter, we see one area potentially expanding further, while the key index SPY, has more to go.

Plus, we have learned from the past, chip stocks can lead only so far before they run out of gas pulling the economic boat all by themselves.

The 23-month moving average, or just shy of a 2-year business cycle speaks volumes.

The Semiconductor ETF SMH is clearing the 23-month MA assuming it can stay above that level through the end of the day this Friday.

If SMH sells off from here, failing the blue line, well-that would be very informative, not to mention embolden the bears.

However, if SMH does indeed close above the blue line, what might be expect as we start the 2^nd quarter?

The SPY chart tells us a different story.

SPY remains rangebound somewhere between 380-405.

Over 405 it could run to 420-the moving average resistance.

Maybe SMH is at 265-270 if SPY get to 420-but then what?

For now, with yields higher, anything is possible.

However, I would respect how this month closes relative to the MAs.

Expansion can begin with tech and trickle down to other sectors.

Or tech could just as easily reverse course in these skittish times.

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