Equities continue to show signs of minor consolidation of early January gains, and while bounces could happen into Friday/Monday, additional pullbacks look to be possible into next week. This would line up with cyclical projections for a possible low in late January.
However, the degree to which US Dollar and Yields have broken down technically argues against an immediate reversal back higher in the near-term and should continue to benefit Emerging markets and commodities.
Furthermore, the broader breadth improvement along with weakness in Defensive sectors likely translates into a buying opportunity for stocks into late January. This also would gel with the bullish seasonal tendencies of 1st quarter performance during Pre-election years and would directly go against the consensus, which calls for an ugly first half.
As discussed, TD Sequential and TD Combo weekly 13 exhaustion signals are now slowly but surely appearing on quite a few of the more important Technology and Discretionary stocks that make up big percentages in the indices and many popular ETF’s. $QQQ confirmed weekly TD Sequential 13 countdowns in recent weeks, along with $AAPL and $AMZN, while $MSFT and $GOOGL are close in this regard.
Ideal area for bounces to find resistance should occur between SPX-3935-3950. Then, I expect a stalling out and turn back lower into next week when many Technology earnings get underway.
Support targets suggest either 3851, or 3824 (preferred) very well could mark the low of any late January weakness. If my thinking is correct, SPX very well might hold above 3800 on weakness, and then turn higher coinciding with bullish seasonality into the middle part of March.
SPX 80-day trading day cycle needs to be obeyed until it stops working
While potentially a bit short-sighted in terms of broader forecasting power, it’s important to always make note of the most powerful and important short-term cycle in S&P 500 and follow this until it shows signs of not working.
Using the 80-day cycle (trading days) it’s possible to make a strong case for Equity markets to bottom out into late January and then turn higher into March.
This particular cycle has been successful in marking most of the important peaks and troughs in SPX over the last year. My AAPL cycle composite aligns with SPX in suggesting any pullback likely will have run its course by late January.
Weekly cycles show some choppiness before a possible March-May decline before markets turn up the balance of the year (Data going back since 1927)
When shortening the beginning of the weekly cycles to only include the last 25 years, one gets a bit more negative forecast, and SPX looks to have particular weakness into Fall of 2023 before turning higher and rallying most of 2024 into early 2025.
At present, given this shorter-term cycle’s success record over the last 12 months, I’m willing to bet that markets could bottom out in late January, potentially into mid-to-late next week. I’ll continue to track this as long as it makes sense to do so. This projection for the next few months of 2023 is shown below.
Commodities should enjoy a very good 1st Half 2023
Last Spring’s peak in commodities resulted in severe pullbacks for the Metals, Grains and most energy related commodities. Yet, trends were largely pretty sideways in consolidation for the group as a whole into end of year.
The sudden uptick in the commodity space early this year looks to be bullish, however, in suggesting that technical trends are turning back to bullish for this group.
This directly coincides with a weakening in the US Dollar which has aided the precious and base Metals over the last couple months. The Dollar has not bottomed thus far despite a severe decline and still looks to drift lower into February and March.
Most Energy related commodities have experienced consolidation in recent months, though the steep downtrend from June into December should now be giving way to a rally in 2023.
Charts of the S&P GSCI Equal-weighted Commodities index vs. SPX is shown below and is often helpful towards pointing out periods where commodities should either outperform or underperform.
This ratio broke out back in mid-December before consolidating and is now turning up even sharper as January has gotten underway. Technically this is a very good sign and indicates that Commodities should outperform in the months ahead.
I’m partial to the Energy and Metals, and while most Base and precious metals have jumped sharply in the last two months, it looks right to use any pullback as a chance to add to these on weakness.
This chart below shows the ratio of Equal-weighted Commodities vs SPX getting stronger and stronger. Thus, I expect commodities to likely enjoy a sharp rally in the first half of 2023. Only when/if the Dollar starts to stabilize and turn back higher could the commodity trade give way. At present, it looks like 2023 might turn out similar to 2022 in providing for a very bullish first half.
Copper cycle composite shows particular strength from February into April
Given the resilience in the US Dollar’s decline lately coupled with interest rates pulling back and China’s re-opening slowly but surely getting underway, Copper has been turning up sharply.
45-week cycles have been one of the stronger to use in calculating highs and lows for Copper over the last decade, and show that Copper is turning up sharply from February into April.
Initial year strength very well could face some consolidation with Gold and Silver given their run. However, Copper is likely to bottom out above $4.00 on any pullback in the weeks to come.
Any weakness should represent a very good buying opportunity technically for a rally back to challenge and exceed last year’s peaks near $5.00.
Commercial hedgers have been getting long Copper over the last six months, while pullbacks into last Summer caused many large Speculators to adopt short positions.
While Copper bottomed in July and has enjoyed a choppy stair-stepping rally over the last seven months, additional rallies are likely this year and despite January’s progress, even stronger rallies look likely from February into April.
One should use any pullback to consider longs in Copper via $FCX, $COPX, or for aggressive traders, one could consider Copper futures for those whose risk tolerance support this.