2022 was a year that required a lot of patience to wait out the cyclical bear market that unfolded – especially in the first 5-6 months of the year. But we saw significant strength across many areas in the fourth quarter, and growth stocks propelled the market into January 2023. The January performance gave us tremendous clues to the Balance of Year performance (February to December). It was amazingly accurate. Consider the top 20 January since 1950, requiring January performance in excess of about 4%, 18 “year-to-date” returns were positive and 14 showed gains of at least 10%. Now let’s compare the bottom 20 January. The lower January 20 all saw monthly losses of 2.5% or more. Balance of Year performance saw gains in only 13 out of 20 years. And only 6 out of 20 had “year-to-date” gains greater than 10%. The January performance correlates positively with the “Yearly Balance” performance.
So let’s take a look at the current performance and technical outlook of SPY (ETF that tracks the S&P 500):
The bottom panel represents the 18-day rate of change (ROC). We’ve had 18 trading days so far in 2023, so that gives us our performance since January. The 6.08% gain in January 2023, if continued through Jan. 31, would be the 10th-best January since 1950, easily placing it in the top 20 January for the past 73 years. Just looking at the price trend, I think it is important to remove the downtrend that has been in place since early 2022. I also believe it is important to break past the recent price highs in the 400-410 range. Friday’s high was 408.16. The downtrend line has been broken but we still need to see price resistance eclipsed near 410. This will be the main target for the bulls this week.
As the action has become much more bullish in 2023, we have seen renewed buying of stocks that are heavily short. I wrote about Wayfair (W) last Sunday after it broke above price resistance in the 42-43 range. W is up more than 36% over the past week as the large number of short sellers (short positions in the float are currently close to 35%) sought cover. Tomorrow morning I’ll reveal a stock with almost 40% of its float short that just broke out on Friday in a pattern quite similar to W. I believe it has potential for a significant rally in the coming week. You can CLICK HERE if you are not already a FREE EB Digest subscriber. Just enter your name and email address and I’ll send you this short squeeze supply around 8:30am ET. No credit card is required and you can unsubscribe at any time.
Happy trading!
Tom
Tom Bowley is the Chief Market Strategist of EarningsBeats.com, a company that provides a research and education platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR) that provides guidance to EB.com members every day the exchange is open. Tom has brought technical expertise here at StockCharts.com since 2006 and also has a fundamental public accounting background which brings him unique skills to approach the US stock market.
