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Broad Market Outlook
Lets talk about the elephant in the room that no one is addressing and that is the possibility that the market may want to retest the pandemic lows. As there are a few hints the market is showing us that, even if it does not happen, there is some probability that it is somewhere on the list of possible outcomes in 2023.
For starters, as much as I felt the 10 year would roll over after this blow up top running to 4% it seems for now that a potential flag may start to form, which would cool down the fear of interest rates continuing to rise but maybe they are not ready to come back to earth as quickly as we (me) thought.
Lets look at another clue:
Telecom was the first sector to start its breakdown stage and is showing us pretty clearly that retesting and more then likely pushing down through those lows would be what is needed before a real base could start to form.
We can see the obvious breakdown stage in the 30 biggest stocks in the country as well. As we see it in Nasdaq, Mid Caps, Small Caps and virtually every major sector as they all continue in there own for the most part breakdown stages.
Right now, we want a base a form in this 350 to 380 area, as we often want a stock to hold its prior breakout area as it pulls back after a 3 day run, when in reality the stock needs to shakeout that low and push even further before its next leg higher.
Now this is not some, lets make irrational decisions to avoid the possibility that we retest those lows because just like when everything looks perfect and there is no chance the trend will reverse, to the downside just when everything looks like the world has already ended, often the sun does come out.
Could we retest pandemic lows in 2023? I think its a safe thing to plan for or be open minded to that being a possibility but we also have to take note that the market has already pulled back 25% and from here to retest those lows the market would need to drop another 40%. As scary as Covid was that was only a 33% drop from peak to bottom, the Great Recession was a 53% drop from peak to bottom.
Could we repeat the Great Recession drop as a drop from 52 week highs of 480 down to 220 would be a 54% drop.
Leading up to the great Recession the market ran up nearly 100% before taking back the entire move and then some.
This time around the market has run up 120% and so far has given back half of that move already.
If we take out 355 to the downside, we should expect more selling pressure to continue but before you start building that dooms day bunker, remember that the percentage moves that occur during these periods often are times where 2-3 day moves can yield 2-3 month returns if you pick your spots properly.
From Bennett
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Macro Rotation Outlook
SPY
Dow Jones
Nasdaq
Mid Caps
Small Caps
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Sector Rotation
Sensitive - sectors that have moderate correlations to overall market conditions.
Tech
Energy
Industrial
Telecom
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Cyclical - sectors that are more sensitive overall market conditions.
Materials
Consumer Discretionary
Financials
REIT
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Defensive - sectors that tend to outperforming during sub par market conditions.
Consumer Staples
Healthcare
Bio Tech
Utilities
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Big Picture Set Up
CI
This CI continues to flag nicely under this 295 area and if it can pull in and put in a higher pivot low, would be an even better sign for us.
DG
DG continues to flag out under this 250 area and if there was a stock I would want to keep on the radar when peoples feeling on the economy is not the most confident, it would be a stock that fairs quite well during economic hardship.
Taking Profits in Energy
The Energy sector as a whole really caught a bid this week and rally hard into resistance as it starts to poke out of this wedge its been forming. After a week going basically straight up, it will more then likely fade this move, could be smart to take some profits and raise some stops when the sector looks perfect.
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