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After an abysmal 2022, the S&P 500 Index and the Nasdaq Composite regained their footing in grand fashion in 2023. The S&P 500 Index ETF ((SPY - Free Report) ) gained 26.19%, while the Nasdaq 100 ETF ((QQQ - Free Report) ) soared 54%. Like in 2023, investors are likely overwhelmed by the plethora of bold analyst estimates in one direction or another. However, the issue with following such bold predictions is that, more often than not, they are based on gut feel rather than data and in-depth analysis. In today’s piece, I will look to cut through the noise and provide three data-backed clues as to where the market may be heading next.
Market Chop Ahead?
Election Year Seasonality
Election year seasonality on Wall Street refers to the historical tendency for financial markets to exhibit distinct patterns and fluctuations during the year of a major political election, influenced by uncertainties and investor sentiment surrounding the electoral process. In 2023, election cycle seasonality trends played out in spades and illustrated to investors the value of studying such trends. According to a back test conducted by Ryan Detrick of Carson Research, election years tend to be weak early in the year (January-April) but tend to rally from April into year-end.
Image Source: Ryan Detrick, Carson Research
Sentiment
CNN’s Fear and Greed Index measures market sentiment by analyzing various indicators, providing a numerical score that reflects the level of fear and greed in the stock market. Last year, each time the index flashed “Extreme Greed” levels, it marked a multi-week, intermediate correction. In late December and early January, the index flashed it once again.
Image Source: Zacks Investment Research
Digestion
Moving averages are a valuable tool for investors. While there are many ways to implement moving averages into your process, one of my favorite ways to use them is to look back at an index and see how far price typically gets from a moving average before pulling back. For example, each time QQQ got more than ~7% or more from the 50-day moving average recently, it led to a pullback. Think of the 50-day moving average as a rubber band – each time the price gets stretched, it usually snaps back in the opposite direction (or corrects through time).
Image Source: TradingView
What stocks are best to traffic in?
Stocks that have liquidity and beta are the best bet for investors to survive a choppy market. For example, International Business Machines ((IBM - Free Report) ) has a beta of below 1, meaning it is less volatile than the S&P 500 Index. Other low beta examples include Costco ((COST - Free Report) ) (.76 beta) and Nike ((NKE - Free Report) ) (1.12 beta).
Bottom Line
While many Wall Street “experts” rely on gut feel, I believe it’s best to make forecasts based on data. The data points included in this article suggest the market may have a choppy first half.
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Choppy H1 24'? These 3 Data Points Say Yes
After an abysmal 2022, the S&P 500 Index and the Nasdaq Composite regained their footing in grand fashion in 2023. The S&P 500 Index ETF ((SPY - Free Report) ) gained 26.19%, while the Nasdaq 100 ETF ((QQQ - Free Report) ) soared 54%. Like in 2023, investors are likely overwhelmed by the plethora of bold analyst estimates in one direction or another. However, the issue with following such bold predictions is that, more often than not, they are based on gut feel rather than data and in-depth analysis. In today’s piece, I will look to cut through the noise and provide three data-backed clues as to where the market may be heading next.
Market Chop Ahead?
Election Year Seasonality
Election year seasonality on Wall Street refers to the historical tendency for financial markets to exhibit distinct patterns and fluctuations during the year of a major political election, influenced by uncertainties and investor sentiment surrounding the electoral process. In 2023, election cycle seasonality trends played out in spades and illustrated to investors the value of studying such trends. According to a back test conducted by Ryan Detrick of Carson Research, election years tend to be weak early in the year (January-April) but tend to rally from April into year-end.
Image Source: Ryan Detrick, Carson Research
Sentiment
CNN’s Fear and Greed Index measures market sentiment by analyzing various indicators, providing a numerical score that reflects the level of fear and greed in the stock market. Last year, each time the index flashed “Extreme Greed” levels, it marked a multi-week, intermediate correction. In late December and early January, the index flashed it once again.
Image Source: Zacks Investment Research
Digestion
Moving averages are a valuable tool for investors. While there are many ways to implement moving averages into your process, one of my favorite ways to use them is to look back at an index and see how far price typically gets from a moving average before pulling back. For example, each time QQQ got more than ~7% or more from the 50-day moving average recently, it led to a pullback. Think of the 50-day moving average as a rubber band – each time the price gets stretched, it usually snaps back in the opposite direction (or corrects through time).
Image Source: TradingView
What stocks are best to traffic in?
Stocks that have liquidity and beta are the best bet for investors to survive a choppy market. For example, International Business Machines ((IBM - Free Report) ) has a beta of below 1, meaning it is less volatile than the S&P 500 Index. Other low beta examples include Costco ((COST - Free Report) ) (.76 beta) and Nike ((NKE - Free Report) ) (1.12 beta).
Bottom Line
While many Wall Street “experts” rely on gut feel, I believe it’s best to make forecasts based on data. The data points included in this article suggest the market may have a choppy first half.