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In the dynamic realm of Wall Street, history does not precisely repeat itself but rather tends to rhyme. Market patterns and behaviors may echo past trends, offering valuable insights for investors. While specific events and circumstances may differ, recurring themes and human psychology often lead to similar market reactions. Monitoring the price and volume action of the market provides crucial clues to discern these rhythmic patterns. By recognizing the rhyme in historical market dynamics, participants can navigate the complexities of the stock market with a more nuanced understanding, enhancing their ability to anticipate and respond to changing conditions.
For the third (and final) part of my “2023 Rewind” series, I will dive into lessons we can learn from the market’s technicals. (In case you missed the first two articles, you can find part 1 here and part twohere.) Below are my five technical lessons from 2023:
Breadth Thrusts Indicate Bulls are Back in Control
Improved breadth, or market participation, is one of the best ways to gauge the market’s strength. History shows investors that broad participation leads to sustainable bull markets.
The Zweig Breadth Thrust is a rare but powerful technical indicator used to measure stock market strength. A Zweig Breadth Thrust occurs when the number of stocks rising in the NYSE and the 10-day exponential moving average of the number of advancing stocks each exceed 61.5%. The simultaneous surge in short-term and intermediate-term market breadth suggests a significant and widespread increase in buying interest. Technical analysts track the Zweig Breadth Thrust because it is rare and reliable historically. Since 1945, there have been sixteen Zweig Breadth Thrusts. In 100% of the instances, the S&P 500 Index has been higher six and twelve months later. 2023 resulted in two ZBT signals (3/31 & 11/3) which have followed history and are off to a fantastic start.
Image Source: Carson Investment Research, Ned Davis Research
The 200-week Moving Average is Powerful
Amateur investors often falsely equate the study of technical analysis with being short-term. However, in my years of investing experience, the most valuable technical information can be discerned from long-term signals. The 200-week moving average is my favorite long-term tool for monster stocks and indices. For example, monster stock Microsoft ((MSFT - Free Report) ) provided a gift opportunity when it tagged its 200-week MA in late 2022 and early 2023.
Image Source: TradingView
Meanwhile, the Nasdaq 100 Index ETF ((QQQ - Free Report) ) has held the 200-week MA since the Great Financial Crisis of 2008!
Image Source: TradingView
3 Waves of Selling
An old Wall Street adage warns, “If they don’t scare you out, they wear you out.”
In my extended research of bear markets, I discovered that many end with three distinct waves of selling in which the second wave is the longest.
Image Source: TradingView
Price Action vs. News
Stock market news is of little use in a vacuum. Instead, investors should focus on how a stock or index reacts to news. For example, in late 2022, stocks reversed early losses and gained more than 3% after inflation reached 40-year highs. Ultimately, the strong price action in the face of negative news was a blatant clue that the market was bottoming.
Another perfect example from 2023 occurred in Coinbase ((COIN - Free Report) ). In June, the US Securities and Exchange Commission (SEC) sued COIN. Though the stock stumbled initially, it recovered from the poor news quickly. Year-to-date COIN shares are up a whopping 450%!
Image Source: TradingView
Stocks Tend to Shrug Off Geopolitical Events
With the exception of major US-impacting events like 9/11, US markets tend to be good at absorbing geopolitical events and climbing the proverbial “Wall of Worry.” In 2023, stocks rose despite escalations in Ukraine and the Middle East.
Bottom Line
On Wall Street, price action is king. 2023 provided plenty of valuable lessons to investors on the technical front.
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2023 Rewind: Technicals (Part 3)
In the dynamic realm of Wall Street, history does not precisely repeat itself but rather tends to rhyme. Market patterns and behaviors may echo past trends, offering valuable insights for investors. While specific events and circumstances may differ, recurring themes and human psychology often lead to similar market reactions. Monitoring the price and volume action of the market provides crucial clues to discern these rhythmic patterns. By recognizing the rhyme in historical market dynamics, participants can navigate the complexities of the stock market with a more nuanced understanding, enhancing their ability to anticipate and respond to changing conditions.
For the third (and final) part of my “2023 Rewind” series, I will dive into lessons we can learn from the market’s technicals. (In case you missed the first two articles, you can find part 1 here and part two here.) Below are my five technical lessons from 2023:
Breadth Thrusts Indicate Bulls are Back in Control
Improved breadth, or market participation, is one of the best ways to gauge the market’s strength. History shows investors that broad participation leads to sustainable bull markets.
The Zweig Breadth Thrust is a rare but powerful technical indicator used to measure stock market strength. A Zweig Breadth Thrust occurs when the number of stocks rising in the NYSE and the 10-day exponential moving average of the number of advancing stocks each exceed 61.5%. The simultaneous surge in short-term and intermediate-term market breadth suggests a significant and widespread increase in buying interest. Technical analysts track the Zweig Breadth Thrust because it is rare and reliable historically. Since 1945, there have been sixteen Zweig Breadth Thrusts. In 100% of the instances, the S&P 500 Index has been higher six and twelve months later. 2023 resulted in two ZBT signals (3/31 & 11/3) which have followed history and are off to a fantastic start.
Image Source: Carson Investment Research, Ned Davis Research
The 200-week Moving Average is Powerful
Amateur investors often falsely equate the study of technical analysis with being short-term. However, in my years of investing experience, the most valuable technical information can be discerned from long-term signals. The 200-week moving average is my favorite long-term tool for monster stocks and indices. For example, monster stock Microsoft ((MSFT - Free Report) ) provided a gift opportunity when it tagged its 200-week MA in late 2022 and early 2023.
Image Source: TradingView
Meanwhile, the Nasdaq 100 Index ETF ((QQQ - Free Report) ) has held the 200-week MA since the Great Financial Crisis of 2008!
Image Source: TradingView
3 Waves of Selling
An old Wall Street adage warns, “If they don’t scare you out, they wear you out.”
In my extended research of bear markets, I discovered that many end with three distinct waves of selling in which the second wave is the longest.
Image Source: TradingView
Price Action vs. News
Stock market news is of little use in a vacuum. Instead, investors should focus on how a stock or index reacts to news. For example, in late 2022, stocks reversed early losses and gained more than 3% after inflation reached 40-year highs. Ultimately, the strong price action in the face of negative news was a blatant clue that the market was bottoming.
Another perfect example from 2023 occurred in Coinbase ((COIN - Free Report) ). In June, the US Securities and Exchange Commission (SEC) sued COIN. Though the stock stumbled initially, it recovered from the poor news quickly. Year-to-date COIN shares are up a whopping 450%!
Image Source: TradingView
Stocks Tend to Shrug Off Geopolitical Events
With the exception of major US-impacting events like 9/11, US markets tend to be good at absorbing geopolitical events and climbing the proverbial “Wall of Worry.” In 2023, stocks rose despite escalations in Ukraine and the Middle East.
Bottom Line
On Wall Street, price action is king. 2023 provided plenty of valuable lessons to investors on the technical front.