Rally Time?

Brit Ryle

Posted January 4, 2023

Well, here we are: 2023. With nearly 2 whole trading days completed for the new year, I thought *now* would be a good time to take a look at the recent action and make some sweeping generalizations about how stocks will trade over the next 12 months.

Because that’s what any investment analyst/strategist/guru who’s worth his or her salt does, right? Throw all the economic reports, inflation data, earnings forecasts, and geopolitical stuff into a big pot, sprinkle in a little proprietary chart analysis, add a dash of accumulated experience, bring all to a boil and POOF –  100% gare-on-teed accurate stock market forecast.

If only it were that simple…

Like the Great OZ, most investment analysts/strategists/gurus would rather you didn’t look behind the curtain as they make their grand pronouncements. If you’d please just stare wide-eyed at the smoke and pyrotechnics and accept the obvious authority of the booming voice as it foretells your imminent fortune, umm, yeah, that would be great…

Probably the first order of business for any individual investor is to not be baffled by the bullshit. Lord knows it gets laid on thick by all the hedge fund managers you see on CNBC. 

Before I “retired” and moved beside a deep-water creek that splits off from the St. Marys river as it feeds into the Atlantic between Cumberland and Amelia Islands, I listened to a lot of Bloomberg radio. And the way every single fund manager and strategist parroted each others’ creampuff analysis and outlook during 90-second interviews was a constant source of amusement for me. 

Amusing, but not really surprising…

Because these knuckleheads all follow the same playbook. And there are a couple very simply rules that they mostly all follow

The First Rule of Investment Club 

The first and most important rule is “don’t rock the boat.” 

At the end of 2021, the total amount of money in U.S. retirement accounts was pegged at $40.8 trillion dollars. $13.2 trillion in IRAs, defined contribution plans like 401Ks held $10.8 trillion, government pension plans held $13.1 trillion and private pension plans held $3.7 trillion.

The people that “manage” all this money get paid very well for services rendered, thank you very much. The single worst thing that could happen to these managers isn’t a bear market, or a recession, or runaway inflation…

It’s ok for them if the value of the assets they manage goes down. “Stock prices go up and down, think long-term…” they tell you. 

It’s very important to understand that fund managers are all on the same team. They don’t compete against each other, they compete against the S&P 500 or some other watered down benchmark. So they all just buy S&P 500 Index Funds, so at the end of the year, they can say “look, I matched my benchmark” and collect their annual bonus. 

Wall Street’s job is not to make you money. Of course if you do make money, great. And the fact is, over time, you will inevitably make money from those S&P 500 Index Funds, because the market goes up over time. So that pretty much takes care of itself. 

So, the single worst thing that could happen to these managers is investors selling their assets because of a bear market, or a recession, or runaway inflation…

Wall Street’s job is to keep you invested and contributing to your 401K and IRA – so they make their money. If there’s one 4-letter word that you’ll never hear them say, it’s “sell.”

Now, you may have noticed when I offered up the asset values for American retirement accounts, the numbers I quoted were from 2021. Google it yourself if you want, I was unable to find retirement account totals from any point in 2022. I don’t think this is a coincidence…

We are still in a bear market, a recession is expected and inflation is still high – the very last thing Wall Street wants to do is call attention to the fact that you might be down 20% in your 401K…

About that Bear Market

I know, I promised you that I’d offer up some sweeping generalizations about the market outlook for 2023. Let’s start with the updated S&P 500 chart I’ve shared with you a few times…


Source: Yahoo Finance

On December 16, I told you that the S&P 500 needed to trade down to the red horizontal line, which sits at 3,818. Because that level, 3,818, fills the gap you can see in the highlighted circle. 

The S&P 500 hit that red line 11 trading days ago. And you’ll notice that it has closed above that line at 3,818 every day since, except for one. 3,818 is clearly an important level. Right now, it is acting as support. Buyers are stepping in at and around that level. 

We have a pretty decent set-up for a rally brewing. If the sellers can’t take the S&P 500 below 3,818 support, the buyers will get bold, and do what they do: push stock prices higher.

I’m encouraged by the strength we are seeing, because the newsflow hasn’t been particularly good. Microsoft (NASDAQ: MSFT), Apple (NASDAQ: AAPL) are hinting at weaker demand and Tesla (NASDAQ:TSLA) is, well, Tesla. 

There was a smattering of good news from Europe on Monday – manufacturing surveys came in a bit better than expected, prompting some to say that the worst of the downturn for manufacturing is over. And Germany’s latest inflation reading came in a bit better than expected, too… 

Traders in the U.S. are clearly looking forward to bullish reads from Durable Goods and Friday’s Non-Farm Payrolls number. 

The 50-day Moving Average (purple line) for the S&P 500 currently sits at 3,903. That’s the first target for this nascent market rally. The second is the recent support/resistance zone between 3,920 and 3,930 – that’s the spot I’m eyeballing. 

Of course, current support at 3,818 is still in play. If the S&P 500 drops below that level, all short-term upside bets are off.

That’s the best I can do with sweeping generalizations right now. If you’re looking for an upside trade, both Bank of America (NYSE: BAC) and Meta (NASDAQ: META) are looking pretty good. 

That’s it for me today, take care and I’ll talk to you soon,

Briton Ryle
Pro Trader Today