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, CAIAThis 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 DeemerDownside 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, MSTACrude 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, CMTIt’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, CMTInvestors 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, CMTIf 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, CMTAfter 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...
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 Member,
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
Brett Villaume, CMT, CAIA, is Past President of the CMT Association, having served on the Board of Directors since from 2014 to 2023. Additionally, Brett is a Wealth Advisor at Dogpatch Capital, a registered investment advisor in San Francisco, CA. From 2015 to 2021, Brett...
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 shows the 25 times it has occurred since World War II (an average of once every 3 1/2 years). Cyclical bull markets, though, are traditionally heralded by breakaway momentum, so we are hopeful that it will be generated this time around, too.
How is breakaway momentum typically achieved? It’s not easy. Usually, we need three things to happen. First, we need a VERY strong advance at the outset of the ten-day period. Typically, this requires an advance-decline ratio in the area of 2800-500 on the first day, 2500-700 on Day Two, and 2050-1050 on Days Three and Four. This creates a cumulative ratio of 2.69-1, which is well above the 1.97 threshold. The very strong advances on the first two days followed by still-positive breadth on the next two are a formidable achievement, but the next one is even tougher. Markets never go straight up, and the real trick in achieving breakaway momentum is to keep declines limited during the inevitable corrections that occur in any ten-day period (it takes two advances to offset every decline, which is why “good” breadth days of 2-1, or even 3-1, won’t cut it as far as achieving breakaway momentum is concerned). In order to keep declines limited during corrections, the corrections must be minimal; often, this occurs when intraday declines abort before the close, and a big breadth deficit turns into just a narrow one by day’s end. Breadth during the “correction days” (Days 5-6), then, should be no worse than 1400-1700; although this pushes the cumulative ratio down to 1.84, this is a far from insurmountable deficit. The final element needed to get breakaway momentum is a second strong advance during Days Seven through Ten; not quite as strong as the initial advance, but not too far behind it, either. If, for example, the market generates breadth during Days Seven through Ten of 2500-700, 2300-800, 2100-1000 and 1900-1200, the ten-day breadth totals are 21000 and 10400. This generates a ten-day breadth ratio of 2.02 – breakaway momentum!
The real trick in generating breakaway momentum? It’s not a lot of advances; it’s a lack of declines. If the market stages a strong two-day advance, for example, it MUST maintain very positive breadth days for a couple of days afterwards (Days Three-Four and Nine-Ten) to keep the ten-day declines to a minimum. Also, declines MUST be kept to a minimum during the “normal” correction in the middle of the ten-day period; declines can exceed advances during those two days, but not by much or it will be impossible for the market to generate the two advances needed to offset every decline.
TABLE I – BREAKAWAY MOMENTUM SINCE 1945
SIGNAL | PEAK | SIGNAL | PEAK |
DATE | A-D RATIO | DATE | A-D RATIO |
Jul 14 1949 | 2.07 | Jan 23 1985 | 1.972 |
Nov 20 1950 | 2.01 | Jan 15 1987 | 2.36 |
Jan 25 1954 | 2.01 | Feb 5 1991 | 2.17 |
Jan 24 1958 | 2.00 | Jan 6 1992 | 1.974 |
Jul 11 1962 | 2.37 | Mar 23 2009 | 2.22 |
Nov 9 1962 | 2.50 | Jul 23 2009 | 2.17 |
Jan 18 1967 | 2.13 | Sep 16 2009 | 2.12 |
Dec 4 1970 | 2.12 | (*)Mar 11 2016 | 1.80 |
Dec 8 1971 | 1.98 | Jul 12 2016 | 2.19 |
Jan 8 1975 | 2.46 | Jan 9 2019 | 2.18 |
Jan 6 1976 | 2.53 | Jun 3 2020 | 2.07 |
Aug 23 1982 | 2.68 | Jan 12 2023 | 2.16 |
Oct 13 1982 | 2.09 | ||
(*)20-day ratio | signal |
January 2019 Addendum
The ten-day ratio of advances to declines is used to define Breakaway Momentum. In 2016, however, Mark Ungewitter noted that the 20-day ratio hit an unusually-high 1.80 on March 11 even though the ten-day ratio never exceeded its 1.97 threshold. This was the first time the 20-day ratio had exceeded 1.72 without an accompanying 10-day reading above 1.97.
Given subsequent market action, we now know the 20-day 1.72-plus reading was a “good” signal even though it wasn’t confirmed by the ten-day ratio until July 12th. Accordingly, I have added it to the table – but with an asterisk, both to indicate that it is the 20-day ratio and to differentiate it from the 12 other post-1973 signals which were all generated and noted in real time.
So: We now know that the stock market generates breakaway momentum when ten-day total advances on the NYSE are greater than 1.97 times ten-day total NYSE declines OR 20-day total advances on the NYSE are greater than 1.72 times 20-day total NYSE declines. (Just in case the market decides to generate another 20-day signal without an accompanying ten-day signal.)
Post-BAM Performance
Post-BAM declines/corrections tend to be surprisingly brief and shallow given the amplitude of the BAM-genersting advance. (When the train leaves the station it doesn’t back up to let late-comers get aboard.)
Via and courtesy of @twillo1:
And via and courtesy of Mark Ungewitter:
– Walter Deemer
Contributor(s)

Walter Deemer
Walter Deemer is a founding member and past president of the CMT Association who began his Wall Street career in July 1963 as a Merrill Lynch research trainee. In April 1964, Walter moved to Merrill Lynch's Market Analysis Department, where he worked under Bob Farrell, and was a...
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 seen
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
Milan Vaishnav is the founder of ChartWizard FZE, Gemstone Equity Research & Advisory Services, and works as an Independent Technical Research Analyst. With a career spanning over 18 years in the Indian Capital Markets, Milan’s primary responsibilities include...
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 presentation:
The Tightening Cycle
Powell and Co. claim they’ll do whatever it takes to cool inflation, even if it pushes the US economy into recession. It’ll take higher interest rates for longer, according to their models.
Wall Street doesn’t seem to believe them. While the median dot from the FOMC’s December Summary of Economic Projections implies a year-end 2023 rate of more than 5%, Fed Funds Futures are pricing in a rate not much higher than where we are now.
Labor Market Showing Signs of Weakness
The primary goal of the Fed’s interest rate hikes is to put a stop to excess inflation. To do that, they need to loosen an extremely tight labor market and dampen demand.
If you look at the unemployment rate alone, you won’t see much change, but beneath the surface, tightening monetary policy is having an effect. Weekly continuing jobless claims, while still near the lowest levels of the last 50 years, have jumped by 400,000 in the last 6 months. The 8 other times claims have risen this quickly, a recession has followed.
Credit Spreads
If the US economy is headed for recession, credit spreads aren’t showing it. A common feature of slowdowns in economic activity is increased default rates by both consumers and businesses. As a result, lending rates to those borrowers rise faster than the risk-free rate paid by the US government.
Credit spreads increased in the early part of 2022, but they’ve since stabilized. If negative GDP growth is ahead, this chart should give us advance warning.
Tech Stocks’ Big Top
Growth stocks were in control for more than a decade after the financial crisis. Being a ‘Value’ investor was synonymous with underperforming. That changed in September 2020, when Information Technology ran into the relative highs it set at the peak of the internet bubble.
Lots of people will argue that technical analysis is a farce. Price moves are random, and historical moves have no bearing on the future. Even more folks will balk at the importance of prices from more than 20 years ago – let alone the ratio of two price indexes.
Does the chart below look random? Do you really think it’s just coincidence that after a decade-long bull market, Tech just happened to peak at exactly the 2000 highs – the height of the biggest Tech bull market of our lifetimes?
In any case, Tech won’t be a secular outperformer again until it absorbs all this overhead supply. In fact, the latest weakness makes it more likely that the sector will continue to underperform in 2023.
Growth vs. Value
Much like the ratio of Tech to the S&P 500, growth stocks have underperformed their value counterparts for much of the last 2 years. There hasn’t been much reason to like the prospects of growth companies, especially in the face of rising interest rates around the world.
That seems to be the consensus opinion, though, and it often pays to play devil’s advocate. Here’s one reason to think 2023 could be different: the Russell 1000 Growth index is nearing a potential level of support relative to the Russell 1000 Value index. The ratio is currently at the 38.2% Fibonacci retracement from the entire 15-year rally.
Crypto
Cryptocurrencies had a tough year in 2022, and that weakness looks set to continue.
Bitcoin is stuck in an indisputable downtrend, having broken the summer lows in November following the FTX meltdown. Former support around 19000 is now overhead supply, and the next area to watch on the downside is 13000. A rally back above 20000 could quickly change the narrative.
Precious Metals
It’s been a while since precious metals were cool. Gold and silver both outperformed handily during the onset of the pandemic in early 2020, but then they lagged in spectacular fashion over most of the next 18 months.
2022 was a year of consolidation for the two metals relative to equity markets. 2023 might be the year they become leaders.
Contributor(s)

Austin Harrison, CFA, CMT
Austin Harrison is an investment strategist and senior equity research analyst at a Missouri-based advisory firm. In 2019, he started Means to a Trend, a blog dedicated to identifying both fundamental and technical trends in financial markets. He employs a weight-of-the-evidence...
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 high correlation
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
As Vice President and Chief Technical Strategist, Adam Turnquist is responsible for the management and development of the technical research product within LPL Research. In this role, he provides LPL Financial advisors and their clients with actionable market insight and...
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. Risks exist in the sovereign debt market, not in corporate
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, CMT
Ian Culley, CMT is an investment analyst and Head of FICC at All Star Charts, focusing on Fixed income, Commodities, and Currencies. He began trading futures and forex in 2016, learning many hard lessons firsthand. In search of community and further study, he joined the 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 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 continuation of 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
Matthew Fox, CMT, MBA is the founder and principal advisor at Ithaca Wealth Management, an independent registered investment adviser that helps its clients compound their wealth through the construction and management of individual stock portfolios. Matt first discovered...
New Educational Content This Month
-
September 13, 2023
Charting and Analysis in Today’s Equity Markets
Presenter(s): Anthony F. Esposito, CMT
-
September 6, 2023
Market Trend Analysis
Presenter(s): Stephen W. Bigalow
-
August 30, 2023
Two New Oscillators – Volume Zone and Price Zone
Presenter(s): David Steckler