The big picture remains largely unchanged as we expect the bear market to continue onwards during the beginning of this year. In this scenario, the second half of 2023 would become extremely bullish and provide a great opportunity for long positions. Ultimately, we expect that the Fed ‘pivot’ or end of the hiking cycle and beginning of rate cuts must occur before the next bull market can resume, as consistent with the majority of past bear markets.
This week, mega-cap earnings kick off as companies like Tesla and Microsoft give their highly-anticipated guidance for 2023. Earnings will likely dominate this week’s trading cycle until next week’s Fed meeting, where a .25 increase is presently expected. Economic data continues to weaken overall aside from inflation which shows increasing signs of cooling. While inflation can proceed lower for the foreseeable future, we expect new all-time highs to be reached within the next few years.
Active Model Position: SPXS (Short S&P 500)
Short term thoughts (Dow, S&P 500, and Nasdaq):
Monday: 60% chance of rally
Intermediate term thoughts (Dow, S&P 500, and Nasdaq):
Final bear market low occurring at 3,000 – 3,400 SPX during Q1-Q2, 2023
Long term thoughts (Dow, S&P 500, and Nasdaq):
Recession 2023 – 2025, bull market 2025 – 2031
Last Week’s Economic Data:
Core Retail Sales: Miss
PPI (MoM): Miss (an optimistic reading for inflation data)
Retail Sales: Miss
Building Permits: Miss
Initial Jobless Claims: Beat
Philadelphia Fed Manufacturing Index: Beat
Upcoming Economic Data:
Thursday: Core Durable Goods Orders, GDP (Q4), New Home Sales, Initial Jobless Claims
Friday: Core PCE Price Index (MoM), Pending Home Sales
Gold’s rallies occur in such short periods of time, that positioning at acceptable price levels whenever they do arise is one of the few ways to capture them. For the first half of this year, we would still overweight gold to equities dramatically, as the risk/reward profile is vastly better than that seen in the US major indexes. Gold also has exceptional upside of up to $3000 over the years ahead, as it continues to fill out one of the most bullish chart formations conceivable. A clean break of $2050 will likely confirm completion of this 10-year cup-and-handle pattern and lead to an explosive rally higher.
Oil also presents a significantly better risk/reward profile to equities for the next 6 months, and we are biased towards metals and energy for any long positions during Q1 and Q2 of 2023. Oil has the potential to retest its February 2022 highs over the next year.
Bitcoin has shown decisive power in its recent rally – but it still is likely just a bear market rally. Bear market rallies are more powerful than bull market rallies, and unless $25,000 is cleanly broken, probabilities still favor lower prices coming for Bitcoin and the other cryptocurrencies.