Unsure where the stock market is headed? That should be you after a tumultuous 2022. Read on to learn how three experts will view the investment landscape in 2023. Above all, get ready to take advantage of new trading and investing opportunities.
Predicting the stock market is like predicting the weather. You never know what will happen from one moment to the next. The stock market can be a tricky beast, but 2023 could be a big year for investors. Whether you’re a short-term trader or a long-term investor, insights from three technical analysts — Mish Schneider, Tom Bowley, and Greg Schnell, CMT — are sure to help you focus on specific areas and get a better idea what trends to look out for.
In a recent StockCharts TV special: “Charting Forward: Q1 Market Outlook,” our chief market strategist and presenter of The last bar, David Keller, CMT, stunned the three panellists in a panel discussion to get their take on the market, which areas are likely to do better, and which areas are likely to underperform. Here is a little insight into the different perspectives.
CHARTWATCHER’S KEY POINTS
- Commodities could shine in 2023, especially precious metals
- Energy stocks form a base and oil prices could see some bullishness
- Stocks look bullish and the biggest challenge in 2023 will be growth vs. value stocks
The raw material cycle
Mish Schneider, Head of Trading Education at MarketGauge.com, is bullish on commodities. Here is her view.
If you look back to the late 1970s, after a period of recession, there was a bear market. The stock market then entered a trading range. It was during this period that commodities began to shine. A similar scenario is likely to play out in 2023.
The S&P 500 index ($SPX) has traded between 3200 and 4200 and we are about to test the upper part of the range. Given that inflation is a global phenomenon, stocks could stagnate for a while, which is why commodities are likely to be bullish in 2023. It wouldn’t be surprising if the US dollar continued to fall and stocks continued to be flat, with some bouts of excitement. But if you want to follow the big trends, don’t lose sight of energy, food and metals.
The 80 month moving average (MA) represents a business cycle collapse and many growth stocks have fallen below their 80-month MA. But when you look at a chart of commodity exchange-traded funds (ETFs) like the Invesco DB Commodity Index Tracking Fund (DBC), you see the opposite (see Chart 1). These ETFs trade above their 80-month MA.
CHART 1: A POSSIBLE COMMODITY CYCLE MAY BE IN THE WORK. The Invesco DB Commodity Index Fund (DBC) is trading well above its 80-month moving average.Chart source: StockChartsACP. For illustrative purposes only.A key point about commodities, if they are knocked down, it could mean buying opportunities. If they look good, you might want to sell them. Commodities have been trading sideways for years. 2023 could be her year.
With gold futures holding $1,900 an ounce, there’s no reason the shiny metal can’t rally to $3,000-$3,500 an ounce. Commodities are emotional, countries need them, governments too. Now that demand for commodities is growing, it’s possible that oil will take the lead and could be the key to igniting it. ~ Misch Schneider
Bullish on energy
Greg Schnell, CMT, MFTA, Principal Technical Analyst at Osprey Strategic, is enthusiastic about energy. Here’s why.
If the US dollar collapses, other asset classes could benefit. $SPX is likely to break out to the upside and reach the 4,500 level. And expect copper to be the theme of the future, especially in wind and solar technologies. Note that copper is seen as an economic leader and sees some upside potential.
When demand for energy increases, there’s a chance that energy stocks will explode. Pull up a chart of the Energy Select Sector SPDR ETF (XLE) and you’ll see that it could signal the start of the next bull leg. If that were to happen, energy is not left behind.
A lower US dollar bodes well for a rise in commodity prices. If you look at a 30-year monthly chart of the CRB Index ($CRB) with the percentage price oscillator (PPO), as in chart 2, you can see that the PPO is as high as ever. So keep an eye on this indicator and when PPO shows up and moves up at the next low, you might want to add commodity-related stocks or ETFs to your portfolio.
CHART 2: COMMODITIES LOOK STRONG. Notice that the PPO goes closer to zero and then turns higher. This could be a clue to investing in commodity stocks or ETFs.Chart source: StockChartsACP. For illustration only.
We’ve seen energy stock prices rally, but crude oil prices were on a base of around $75 a barrel, which could be the bottom. If you wanted to invest in oil, you should buy it at a low price and there are chances that crude oil prices will rally from $75. Going back to the 40-period MA, it looks like crude oil prices are pretty close to hitting that moving average.
We’re going on a rose hunt here. When Crude Oil crosses the centerline (40-period MA) on the rink, oil moves deep into the zone. ~Greg Fast
Value vs growth stocks
Tom Bowley, EarningsBeats.com’s chief market strategistis quite optimistic about 2023. That is why he believes that $SPX has bottomed.
The stock market had risen so much in 2020 and 2021 that a mean reversion was due, which happened in 2022. There’s a lot of accumulation going on, and the biggest challenge in 2023 will be deciding between growth and value stocks. Much will depend on what the Fed does and how interest rates move from here, but it is likely that the SPX Dollar will head higher, perhaps to 4,700 or even an all-time high later in the year.
In 2022 there was a shift in the markets in Q4. The Dow Jones Industrial Average ($INDU) was up 17%, while the Invesco QQQ Trust (QQQ) was relatively flat. Large cap-weighted $SPX stocks struggled, but the index rallied in Q4. This supports the idea of money flowing into the markets and the possibility of a bull market in stocks.
Value stocks are likely to outperform growth stocks in 2023, although growth stocks will come back at some point. Bring up an IMF:IWD chart and you will see a reversal to the mean (see Chart 3). In a low interest rate environment, growth stocks tend to outperform. You shouldn’t be overweight growth stocks until interest rates start falling. Then it makes more sense to invest in S&P 500 companies.
Given my fundamental background, growth stocks will benefit when rates start falling. Then I wait for a trend reversal in the charts from a technical point of view. Most bull markets will raise all boats. ~Tom Bowley
CHART 3: GROWTH VS. WORTH. Here’s the ratio of growth stocks to value stocks. Growth stocks underperformed value stocks in Q4 2022. Will the trend continue into 2023? It might, at least in early 2023. It would also be interesting to see the reaction at the 50-day moving average (blue line).Chart source: StockChartsACP. For illustration only.
Long-term trends and mood swings
It goes without saying that analyzing prevailing and long-term trends is key to getting an idea of how the stock market might look in the future. But like the weather, nothing is certain in the markets. So be prepared to invest in markets that may not have been on your radar in the past. Keep a close eye on changing investor sentiment; It can go a long way in determining which assets should be in your portfolio and which should leave. Stay tuned for next quarter’s market outlook.
Want to hear more from the three talented technical analysts? Watch the entire conversation in the video below.
Jayanthi Gopalakrishnan
Director, Website Content
StockCharts.com
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation or without consulting a financial professional.
Happy charting!
Jayanthi Gopalakrishnan is Director of Site Content at StockCharts.com. She spends her time creating content strategies, providing content to educate traders and investors, and finding ways to make technical analysis fun. Jayanthi was the Managing Editor at T3 Custom, a content marketing agency for financial brands. Prior to that, she was senior editor of Technical Analysis of Stocks & Commodities magazine for over 15 years.
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