Technically Speaking, January 2023

Welcome to January of 2023! And guess what? The Santa Claus Rally marked its attendance! We have learned that not the presence but the absence of this rally impacts the market moves. With that out of the way, it is business as usual on Wall Street. 

We live in a world where we receive dollops of information every second. It takes a remarkable determination to steer clear of the noise and focus on the price. While I go by the principle of ‘One day at a time,’ I have to admit that the outside noise finds my hiding place from time to time. After multiple attempts, when I cannot shrug it off, I allow that noise to consume me momentarily and pass through. Then I open my charts again and enable the information to reach me, rather than chasing it with preconceived notions. Technical Analysis aids in putting the spotlight back on the main character – price. 

Speaking of price, what has the market been up to?

While on the one hand, the recession chatter gets louder, on the other hand, we have close to 75% of the All Country World Index (ACWI) indices trading above their 40-week average. The US Dollar has paused, correcting to levels of 103-102. But this has finally triggered a rally in the precious metals. Gold and Silver have been doing nothing for too long, but that has changed now. As the market digests all the information that continues to flow in, the fact remains that more stocks are going up than down. 

So, what is it that could throw a wrench in this move? The US Dollar, of course! While DXY is currently keeping a low profile, this one variable all by itself has the potential to change the scenery as we go forward. DXY is one chart I’m keeping both my eyes on. 

We are getting closer to the 2023 CMT Symposium, and if 2022 were any indication, this year will knock it out of the park! The registration link can be found here. If you haven’t already, check out the speaker list for the event, it is legendary! 

Here’s wishing everyone a joyful and profitable 2023, regardless of where the market goes!

Until next time, 

Think Technically! 

What's Inside...

President's Letter

by Brett Villaume, CMT, CAIA

This month’s President’s Letter is dedicated to all of the volunteers that make the CMT Association the global leader in Technical Analysis research, education and advocacy. I want to give a big...

Breakaway Momentum 101

by Walter Deemer

Downside momentum usually peaks at the end of a decline, as prices cascade into a primary low. On the upside, though, momentum peaks at the beginning of an advance, then gradually dissipates as the...

A Top-Down Exploration Of Crude Oil Presents A Bullish Case

by Milan Vaishnav, CMT, MSTA

Crude Oil had a shaky beginning to 2023. The first two trading days of the new year saw Brent Crude plotting a high of 87 and a low of 77.72; a wide swing that was almost over 12% in terms of price....

The 10 Charts to Watch in 2023

by Austin Harrison, CFA, CMT

It’s a new year, so there’s no better time to take a step back and think about what will drive markets in the months ahead. The Components of Inflation At his November 30, 2022 speech, Federal...

Looking For Years That Look Most Like 2022

by Adam Turnquist, CMT

Investors have gladly hit the reset button after last year’s downhill ride on the S&P 500. What started with a champagne record high on the first trading day of 2022, fizzled out into a...

Credit Spreads Contract

by Ian Culley

If bond markets aren’t stressing, why should we be? They’re the largest markets in the world. That’s why we constantly monitor credit spreads for signs of structural weakness and...

A Great Start For Stocks In 2023. But Can The Strength Continue?

by Matthew Fox, CMT

After a dismal 2022, this year is off to a great start for stocks. In the first two weeks of 2023, the S&P 500 is up 4.2%, the Nasdaq 100 is up 5.5%, and the Russell 2000 is up 7.3%. It’s...

President's Letter

President's Letter

This month’s President’s Letter is dedicated to all of the volunteers that make the CMT Association the global leader in Technical Analysis research, education and advocacy. I want to give a big shout out and thank you to Jamie Coutts, CMT, CFTe, who served on the Board of Directors from 2016 through 2022. Jamie was instrumental in building our APAC regional presence over these years, having first organized chapter meetings in Singapore – some of the most well attended meetings globally – and then serving as the first Chair of the APAC Committee. Jamie was also a strong proponent of quantitative technical analysis and the study and use of cryptocurrencies, helping to guide the Board in making strategic planning decisions regarding these important and developing subjects. His enthusiasm, professionalism and expertise aided the CMT Association tremendously. That being said, Jamie is still involved in CMT events and remains an active…

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Brett Villaume, CMT, CAIA

Breakaway Momentum 101

Breakaway Momentum 101

Downside momentum usually peaks at the end of a decline, as prices cascade into a primary low. On the upside, though, momentum peaks at the beginning of an advance, then gradually dissipates as the advance goes on, and the more powerful the momentum at the move’s beginning, the stronger the overall move; REALLY strong momentum is found only at the beginning of a REALLY strong move: a new bull market or a new intermediate upleg within a bull market. We coined the term “breakaway momentum” in the 1970’s to describe this REALLY powerful upside momentum. The following is a review of what it is and how it is typically generated. Breakaway momentum (some people call it a “breadth thrust”) occurs when ten-day total advances on the NYSE are greater than 1.97 times ten-day total NYSE declines. It is a relatively uncommon phenomenon; the table at the end of this report…

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Walter Deemer

A Top-Down Exploration Of Crude Oil Presents A Bullish Case

A Top-Down Exploration Of Crude Oil Presents A Bullish Case

Crude Oil had a shaky beginning to 2023. The first two trading days of the new year saw Brent Crude plotting a high of 87 and a low of 77.72; a wide swing that was almost over 12% in terms of price. After that, the commodity stabilized and has been steadily rising over the past couple of sessions. However, a top-down exploration of the Brent Crude charts presents a much clearer picture that is devoid of “noise” and lays down a potentially bullish case for the commodity. A glance at the long-term monthly chart of Brent Oil shows a formation of a large Symmetrical Triangle; from the beginning of 2008 until a breakout in June 2021, this formation took over 13 years to develop. The up move that followed the pandemic lows eventually led to a breakout in June 2021. More importantly, following a corrective retracement, Brent Crude price is…

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Milan Vaishnav, CMT, MSTA

The 10 Charts to Watch in 2023

The 10 Charts to Watch in 2023

It’s a new year, so there’s no better time to take a step back and think about what will drive markets in the months ahead. The Components of Inflation At his November 30, 2022 speech, Federal Reserve Chair Jerome Powell described the 3 primary components of inflation – Core Goods, Housing Services, and Core Services less housing. Core goods drove the first wave of this inflationary cycle, as surging demand for tangible products during the pandemic came face-to-face with sagging production and supply chain disruptions. The next wave was led by a spike in the cost of housing. Core goods inflation peaked in early 2022, and housing will likely peak around the middle of this year (see Figure 3 below). The Fed will look past what it sees as ‘transitory’ declines in core goods and housing inflation, and instead focus on the price of core services. These charts are from his…

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Austin Harrison, CFA, CMT

Looking For Years That Look Most Like 2022

Looking For Years That Look Most Like 2022

Investors have gladly hit the reset button after last year’s downhill ride on the S&P 500. What started with a champagne record high on the first trading day of 2022, fizzled out into a volatile bear market by June and nearly a 20% decline by year-end, marking the fourth worst year for the index since 1950. Given the degree of last year’s decline and abnormal path of price action, including a single record high on the first trading day of the year, we analyzed correlation data to find years that most closely resemble 2022. More specifically, we calculated the daily return progression of the S&P 500 for every year going back to 1950 and then ran a correlation analysis comparing each year to 2022. The bar chart below provides a breakdown of each year’s correlation to 2022. As you may notice in the chart above, very few years have a…

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Adam Turnquist, CMT

Credit Spreads Contract

Credit Spreads Contract

If bond markets aren’t stressing, why should we be? They’re the largest markets in the world. That’s why we constantly monitor credit spreads for signs of structural weakness and elevated risk. But, as of now, we’re not seeing the slightest hint of impending catastrophe. Despite the doom-and-gloom headlines popping up in your inbox and financial media talking heads spinning an imminent recession… Credit spreads around the world are sending a clear message: “Relax.” Check out the overlay chart of option-adjusted high-yield credit spreads: They’re all contracting to levels from last summer. Even the riskiest CCC-rated spread is reverting lower. This is the exact opposite of what we would expect if the world was coming to an end and investors were running for the exits. Instead, market participants are reaching for additional risk despite the tempting yields offered by risk-free Treasuries. It could change, of course. But this isn’t bear market behavior.    “But Ian, it’s different this time.…

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Ian Culley

A Great Start For Stocks In 2023. But Can The Strength Continue?

A Great Start For Stocks In 2023. But Can The Strength Continue?

After a dismal 2022, this year is off to a great start for stocks. In the first two weeks of 2023, the S&P 500 is up 4.2%, the Nasdaq 100 is up 5.5%, and the Russell 2000 is up 7.3%. It’s an even better showing outside the US, with the ACWI ex-US index up 7.8% while emerging market stocks are up 9.0%.  But with a bulk of the market still inside its downward trending channel that began exactly one year ago, is this just another bear market rally that’s destined to fade? Based on the constant barrage of negative headlines (“imminent” recession, inflation still too high, expected earnings decline, upcoming debt ceiling fight etc.), I think many fundamental investors are saying yes.  Or, can the recent strength in the stock market be sustained long enough to power a breakout that marks the start of a new cyclical uptrend and the…

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Matthew Fox, CMT

New Educational Content This Month