Weekly Economic and Stock Market Commentary – January 30, 2023
As for the stock market specifically: The markets had another strong week in conjunction with solid economic news. The Nasdaq Composite led the way with a gain of more than 4 percentage points. I am unsure if the tech wreck of 2022 is complete, but the gains certainly are welcome.
Behind the good news so far this year, we still need to remember that the major market averages are substantially lower than the record highs near the end of 2021. Enjoy the gains while we have them, and avoid complacency.
What follows for the next few paragraphs is stock text that I present occasionally. These items are the basic building blocks for the investment strategy I use. Bear in mind that this is simplified.
On the left I highlighted a bullish chart pattern that I will call a double top break. This is a column of demand that exceeds the previous column of demand. The “signal” occurs when the stock shows demand (buyers) at $35.00.
The blue numbers and letters are used to tell time, 1 for January, 2 for February, etc., with A for October, B for November, and C for December.
This chart highlights a bearish chart pattern that I will call a double bottom break. This is a column of supply that exceeds the previous column of supply. The “signal” occurs when the stock shows supply (sellers) at $38.00. The blue numbers and letters are used to tell time, 1 for January, 2 for February, etc., with A for October, B for November, and C for December.
The bullish percent is the number of stocks that have bullish patterns, nothing more, nothing less. It is calculated by counting the bullish charts, and dividing that number by the number of stocks in a sector/market. Then multiply by 100 to get the percentage. A key item to remember is that all stocks that have traded for some time will be either bullish or bearish, not both.
The discussion comes down to a variation of this: “Why are the bullish percents increasing, but the numbers I see on TV are a little up, flat, or a little down?” Since this is election season, think of the difference in terms of the composition of Congress.
There are two basic answers. One potential answer comes from the nature of the bullish percent. It is based on the notion that a stock as large as General Electric counts as much as a stock of the size of the smallest stock on the NYSE. Think of the bullish percent like the US Senate – California counts as much as South Dakota.
The other potential answer stems from the composition of the index, such as the Dow Jones Industrial Average, S & P 500, or Nasdaq. The S & P 500 and the Nasdaq are known as capitalization weighted. That means the largest companies in the respective index holds greater influence than the smaller companies. The metaphor here is to the US House of Representatives. There, California has approximately 52 representatives, while South Dakota has 1.
It was a good week for the risk assessment tools I have. Each bullish percent indicator strengthened last week. We still have very good field position, and I intend to work accumulated cash into the market. The nature of the evidence has us in WEALTH ACCUMULATION mode across the board.
Remember, X’s mean OFFENSE or wealth accumulation, while O’s mean DEFENSE, or wealth preservation.
Below is where our indicators stand as of January 27, 2023 (Courtesy Dorsey, Wright, and Associates).
On a general note: The Department of Commerce released the initial report regarding 4th quarter Gross Domestic Product. GDP rose at an annualized rate of 2.9% during the quarter. This was below the 3.2% growth rate of the 3rd quarter. The report noted economic activity slowed in nearly every area. The report did not state a growth rate for the entirety of 2022. With the 3rd and 4th quarters showing growth, the recession of the first half of the year is over.
The Commerce Department also reported December Consumer Spending declined 0.2% compared to November. The decline was 0.3% when adjusted for inflation. That was the second straight month of declines. That said, predictions regarding the demise of the American consumer have been incorrect countless times over the 22-year history of this commentary.
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