The New Year brings in fresh hopes for something better. We make resolutions. I am really going to lose those extra pounds this year, by the way, where are the M&Ms?
We want to turn the page on the year that was, $10 trillion in wealth lost for Americans in 2022 and $33 trillion worldwide. (1) Ouch! Yes, let’s memory hole that awful year as quickly as possible.
Which brings us the January Effect. It’s a theory that how stocks do for the first month of the year tends to predict whether markets will have a plus or negative return for the year.
It looks like there might be a chance for the NASDAQ to get a head start on the positive side of the ledger to begin 2023. But, there is a catch and it is a big one. If bulls take control early in the week, the NASDAQ could break a downtrend, which could further encourage buyers to add more stock. However, a double layer of resistance might limit an advance to between 10,900-11,000 for the NASDAQ, which is where you will find the 50-day moving average and technical resistance.
Now, for the big catch. The NASDAQ has very little room for error. If the tech-tilted index closes below 10,250, then it is very likely to zip lower to 10,000, and that’s where things can get dangerous. As we talked about last week, prices could fall precipitously if/when the NASDAQ closes below the psychologically important 10k.
Close below 10,000, and the market could shave off somewhere between 10 and 20 percent in a short timeframe.
We don’t want to write that chapter to start 2023. So, let’s hope the optimism that rings in a new year brings to life our first scenario and the NASDAQ breaks its current fall. Although, the biggest risk remains to the downside. For now, investors might consider selling portfolio laggards into a relief rally, if there is one, and reallocating the cash to market leaders when conditions are more favorable.
Biotech and Technology owned nine of the 10 top spots last week on our performance leaderboard. Momentum turned modestly bullish for ALPS Medical Breakthroughs ETF (SBIO) and SPDR S&P Biotech ETF (XBI), which were last week’s number one and two performers. Mo’ has not turned on the green light for tech yet. Meanwhile, the charts for SBIO and XBI are neutral at best.
We’ll pass on adding an index exchange-traded fund (ETF) to this spot, maybe next week.
With so much downside risk just a few steps from where the NASDAQ is today, there is no way we can entertain the idea of adding an individual stock here.
A plus start to the week could bust the NASDAQ’s current falling trendline.
However, good vibes could be cut short at roughly 11,000, where resistance and the 50-day moving average reside.
1 – https://www.cnn.com/2022/12/30/investing/dow-stock-market-2022/index.html