The new year can bring the hope of a better market environment. While it can be tempting to draw conclusions about all of 2023 from how December closed and January has begun, we would counsel patience. One lesson from 2022 is that normally reliable indicators of strength can be distorted in elevated volatility environments. The evidence has not improved and caution remains warranted. The liquidity environment remains poor, last year’s pattern of lower lows and lower highs is intact and the trend in the net new high data has not improved. Across asset classes, and both in the US and around the world, uptrends are hard to find. Gold, though, is starting to shine.
Our Weight of the Evidence Dashboard fills in the details and includes a few charts that have our attention heading into 2023.
Ok, that question answers itself. Of course you have. We all have.
For our purposes today, I’m more specifically focused on the periods when we resist something that deep down we know would be good for us. Or the right thing to do. Or the intelligent thing to do. Or the helpful thing to do.
When nothing but goodness can result from taking a specific action, why do we resist it? Why do we willingly sabotage ourselves like that?
Author Steven Pressfield in his bestselling book “The War of Art” terms this “The Resistance”. Capital T, Capital R.
Another Santa Claus Rally is officially in the books.
This year the S&P500 rallied 0.80% during the period, which is more than 3 times the historical returns for all the other 7 day periods throughout the year.
When did the NYSE new highs list peak? When the dollar bottomed...
When did equities bottom? When the dollar rolled over...
It's not rocket science.
I don't care why it's the case because the correlations are so evident. It's a fundamental reality in this tape: A weak dollar is positive for stocks and crypto, while a strong dollar pressures those assets.
Now, consider: What have been the defensive assets in this market?
The Japanese yen? Nope.
Gold? Not until recently.
Bonds? Hell no.
Whenever shit's hit the fan, that money has flowed into the US dollar.
As many of you know, something we've been working on internally is using various bottom-up tools and scans to complement our top-down approach. It's really been working for us!
One way we're doing this is by identifying the strongest growth stocks as they climb the market-cap ladder from small- to mid- to large- and, ultimately, to mega-cap status (over $200B).
Once they graduate from small-cap to mid-cap status (over $2B), they come on our radar. Likewise, when they surpass the roughly $30B mark, they roll off our list.
But the scan doesn't just end there.
We only want to look at the strongest growth industries in the market, as that is typically where these potential 50-baggers come from.
This morning, our analyst team was bouncing ideas around when I posed the group this question:
"It's the beginning of a new year. Do we want to continue buying strength (as we have been)? Or do we want to buy some well-selected dips on stocks in sectors we like?"
In other words, what's our appetite?
The prevailing sentiment that won out was that we have been buying strength -- and that has worked well in some areas, particularly homebuilders, Chinese stocks, and metals stocks. But the reward-to-risk opportunities right now may be more favorable in the "buy-the-dip" camp.
So with this in mind, let's take a look at a stock in the semiconductors sector that has our attention.
