January Strategy Session: 3 Key Takeaways

January 5, 2023

From the desk of Steve Strazza @Sstrazza

We held our January Monthly Strategy Session Tuesday night. Premium Members can access and rewatch it here.

Non-members can get a quick recap of the call simply by reading this post each month.

By focusing on long-term, monthly charts, the idea is to take a step back and put things into the context of their structural trends. This is easily one of our most valuable exercises as it forces us to put aside the day-to-day noise and simply examine markets from a “big-picture” point of view.

With that as our backdrop, let’s dive right in and discuss three of the most important charts and/or themes from this month’s call.

1. No Structural Damage

Despite the steady barrage of selling pressure that plagued 2022, there is no real damage at the index level when it comes to US Equities.

The Value Line Geometric Index, which is comprised of roughly 1,700 equities listed in the US and Canada, measures the median stock price change. For this reason, it is as good of a representation as any of how the average stock is performing.

Notice how buyers stepped in to defend a shelf of prior-cycle highs around 500 back in October. This is the principle of polarity at its finest, as resistance from almost 25 years ago has successfully turned into support. If it's above those former highs, we're looking for stocks to buy, not sell.

As long as the Value Line Geometric Index is above this key level of interest, the long-term trend for equities remains intact, and the broader market is likely to continue the bottoming process. We could also look at this chart in awe over the fact that the median stock has made little to no progress since 1998.

2. The Best Year in the Cycle

The Nasdaq is not the US stock market. It is, however, a composite of some of the worst-performing stocks out there.

It makes sense given the rising rate environment. But many growth investors will likely find it surprising that most stocks and sectors are trending higher.

And from a seasonal perspective, Pre-election years are some of the most bullish times in stock market history. Here’s what the 4-year cycle looks like as we head into 2023:

The S&P 500 has only posted back-to-back losses 8 times since 1928 and has never entered a recession during the Pre-election year of the presidential election cycle.

There’s always a first for everything, but we won’t let a handful of growth stocks overshadow the fact that many areas are catching higher as the market enters what tends to be a very bullish seasonal period.

3. Carpe Diem

Is there a better way to cap off the holiday season than fresh 6-month highs for silver and gold futures?

Over the past two years, these shiny rocks have represented opportunity cost and, at times, downside risk. But a new year brings new beginnings, and gold bugs are ceasing the day!

The bears couldn't take control last fall, resulting in failed breakdowns below multi-year support. It's hard not to like precious metals if gold and silver continue to trend above those critical levels.

And when we consider the mounting evidence we've compiled in recent weeks, these failed breakdowns could spark the next structural uptrend for the entire space.

Those are some of the main takeaways from this month’s strategy session.

Thanks for reading, and please let us know if you have any questions!

Allstarcharts Team