Another fun week ahead with J-Pow speaking on Tuesday, followed by the first CPI print of the year on Thursday, and some critical earnings reports could catalyze a trifecta of events that could either give bulls or bears momentum. Fun is a relative term here, one might say.
Before we speculate, first, let's look at technical levels. ES was finally able to breakout of the range on Friday, albeit not by much. Time will tell if this breakout is the real deal. If this breakout has legs, look for 3952 and 4000 levels next. If we fall back in the wedge I expect us to dump very quickly back to 3800 levels.
In the structural downtrend we have been in since November of 2021, we have chopped through tight wedges a vast majority of trading days. Friday proved to be something of an anomaly. That is one preposterously large green candle, and when it hit upward resistance, it just kept going. Short squeeze, bear trap, bull trap, local market bottom from October 2022? There are many questions we do not have answers to yet. Again, let's just focus on technical levels for the trading week:
Shorts / puts on ES under 3900, await confirmation, then safe to assume we chop back into the above range;
Profit taking zone 1) 3877; 2) 3852; 3) 3824, where there is a line in the sand, i.e. expect ES to catch a bid here, and if not then it could fall to 3800 or lower;
ES / Spx / Spy will lead the way to give us an indication of the full market outlook. Still, there are others on the weekly watchlist if there is simply no technical confirmation to provide a high conviction play.
$AAPL 133c **over** 131.50
$AAPL 125p **under** 127.85
$NVDA 155c **over** 151.00
$NVDA 149p **under** 146.00
$MSFT 230c **over ** 230.00
$TSLA 120c **over** 115.00
$BAC 35c **over** 34.80
$PYPL 80c **over** 78.50
$CCL 10c **over** 9.50
Back to the question of what happened on Friday, we must follow the data prints. At 8:30 a.m., nonfarm payrolls came in hot, above forecast. Unemployment actually decreased month over month. At open, we dumped. Then at 10:00 a.m., the bulls were given some momentum by numbers coming in below forecast. Despite this data indicating a slowdown in economic activity, which should further tilt bearish, bulls assumed control of the market. Fighting the Fed, many might argue, which could give J-Pow something to remark on this Tuesday. In any event, here we are on $Spy:
What happens this next week is a 50-50 play as of this writing, the weekend before the market opens on January 9th. In other words, await technical confirmation, or you may as well play the roulette tables in Las Vegas. Meanwhile, interesting movement in $Gld:
This golden cross is an extremely bullish indicator for gold, and perhaps shows that 2023 is setting up to be a super cycle for commodities. For that to be the case, fiat currencies need to lose value, and the $Dxy is heading for lower lows. Inflation remains a constant. High demand with limited supply. Fed funds rate stabilizes and flatlines. All of this is setting up for metals, junior miners, and some speculators may even take a look at digital miners for pennies on the dollar as they whether the Bitcoin / crypto storm.
Back to this week, let's take a look at what's on the calendar. The "trifecta" I mentioned above can play out one of three ways. The bullish case is that J-Pow has a dovish tone on Tuesday, CPI prints at or below consensus on Thursday, and earnings reports throughout the week look good. This should signal to the bulls that the "soft landing" is very much in play, at least in the short term.
Friday in particular has some major players releasing info pre-market.
One thing to always remember, as the saying goes, "bear markets make fools of bulls and bears." Technical confirmation, high probability, high conviction plays are the way to go, and even still, things can change on a moment's notice. For reference, take a look at some bull and bear trap setups:
As if that isn't 50-50 enough for you to take a step back, zoom out, deposition, and sit on your hands, I present you another item:
Where are we at in this cycle? 2022 was a structural bear market, and 2023 may carve out its own unique path. We do not know yet. We can monitor the market on a daily basis, and we can observe the liquidity flows.
From the YouTube video in the 2023 investing series, for those that are not tracking every 5 minute candle on every single trading day of the year (God bless those of us masochistic enough to be doing so), other ideas were suggested. In other words, no day trading, no options plays / spreads, and instead more of a buy and hold and swing approach.
For generational wealth, there are a variety of tickers we have an eye on. In the longterm, we want to hold as many shares as possible of the following tickers (see below). We will be patiently waiting, as we do not think we are out of the woods just yet, or any time soon. The US is likely headed toward recession this year, the Fed is not going to lower rates in 2023, the famous "60/40" portfolio just had one of its worst ever years in 2022, global inflation is not under control, geopolitical tensions have not resolved, and the list goes on and on. We may rally here and there, but we will fall again. As such, this may shape up similarly to the dot com bubble, in which we found lower lows until we officially bottomed after ~900 days. During that time, there were 30, 40, 50, and even 60% rips to the upside. And it came back down every time. Until proven otherwise, we should treat 2022 the same way.
$Meta
$Aapl
$Intc
$CRM
$Shop
$Amzn
$Snow
We will list others, and entry points, just be sure to subscribe to stay tuned
As a hedging play, we listed a few tickers in the agricultural space. $DBA was mostly flat for 2022, which means it beat the market by ~20%. $VEGI was up around ~3-4%, as this index tracks global supply side farming & agriculture. Our reasoning for these plays is that the market may fall again in 2023, and for all we know, it could be worse than 2022. Food, on the other hand, is recession proof. And if a commodities super cycle is under way, while inflation cannot be solved, then the cost of food, along with the production thereof, will increase. Government intervention in core inflation seems to have focused on energy, oil, and increased borrowing rates cool off the housing market. Food, by and large, is outside of this realm. There could be room to run here.
In the YouTube video, we also talked about some plays in the luxury space. We mentioned three things in particular: watches, automobiles, and real estate. Luxury items maintain their value, falling by ~20% maximum even in the worst of times. If someone is in a jam, needs to raise liquidity, and you can swoop in like a vulture, I like all cash offers for luxury watches, automobiles, and real estate. In particular, real estate is a cash flowing asset once you have tenants placed. If you can get a great property in a great neighborhood for a discount, the asset itself will appreciate in value, and you can start collecting monthly rent from a tenant. For more information on this, you'll have to contact me directly. Too much to say in too few words here.
Lastly in the video, we talked about commodities miners, and in particular we talked about "junior" miners. First of all, why the miner instead of the commodity? The short answer is as follows: if the company has cash on hand, a low earnings per share, and is sitting on a stack of commodities that are in high demand, then its appreciation can be double or triple (or more) that of the commodity itself. In the "junior" space, following the same fundamental principles, there is greater room for appreciation, as it always the case for a winning micro-cap. I like gold, silver, copper (and other metals) as my "tier 1" plays for 2023. I like uranium as my tier 2 play. I absolutely love some digital mining companies in the Bitcoin space, but 2023 may be a bit too early. Too much drama in that industry right now, at least as of this writing.
Still processing the events of the first trading week of 2023, my head is still spinning. I am equal parts anxious, terrified, and stoked for the markets to open on January 9th. When I zoom out, on the other hand, I can definitely see the benefit for somewhat active management, as described in the YouTube video. Checking your plays on a weekly / monthly basis may not only be more relaxing, it may be a better way to avoid getting caught in the chop and fakeouts this market keeps throwing at us.
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