The bear market roared in 2022.
In a somewhat brutal twist, the S&P 500 reached an all-time high on January 4, the second trading day of the new year. From that moment on it’s party time for the bears.
When inflation raged at the beginning of the year, the Federal Reserve was behind the eighth ball and was forced to implement a series of aggressive rate hikes in an effort to curb inflation.
Between rising interest rates and recession concerns, equity bulls have their work cut out this year. Here’s how the tech data is shaping up for 2023.
Looking at the S&P 500 for 2023
Earlier this year, I focused mostly on the $350 area for the SPDR S&P 500 ETF Trust (SPY) – Get a free report. That’s because it contained the 50-month moving average, the 50% retracement area, and a major breakout zone in 2020.
However, after a strong rally, the SPY finds resistance at the falling 50-week moving average for the second time in a row.
With the SPY hovering around $380, we are in the middle of the recent range and gearing up for an indoor week. With several downtrends ahead, the SPY looks bearish.
A break of the $375 area likely opens the door to the 200-week moving average. If it fails as support, that will open the door back to the $350 area and the SPY’s 52-week low.
Below that, it is possible for the SPY to retest its pre-covid high near $339, followed by a possible dip to the 61.8% retracement at $318. That would represent a drop of about 33% from of the highest point ever mean.
So what should the bulls do?
In the short term, it would be helpful for the SPY to retrace the 10-week and 21-week moving averages. But to form a sustainable uptrend, it needs to regain its 50-week moving average and reach a higher low.
From there it has the potential to become one higher high and start forming a new uptrend.
Traders must come to terms with the possibility that we will not make new all-time highs in 2023. It is possible that next year we will be range bound and stock selection will become much more important for traders to succeed.
Looking at the Nasdaq for 2023
Tech has lagged the rest of the market heavily this year, as evidenced by the 33.6% year-to-date loss for the PowerShares QQQ Trust (QQQ) – Get a free report.
The QQQ trades below all of its major weekly moving averages, as well as the 50-month moving average.
It holds above the 61.8% retracement and current low for the year near $254.
If the QQQ can clear the $292 to $295 area, it will open the door for a rally to the falling 50-week moving average, a measure it hasn’t tested since April (unlike the SPY).
On the other hand, if the QQQ bottoms out and fails to stay above $250, it’s possible we could get a test of the $237 to $240 area, which is the pre-covid high. In that scenario, bulls should pay attention in the long run.
That would mean the QQQ ETF is down about 40% from its all-time high. Historically, that has been a good buying opportunity for long-term investors. It would probably also mean companies like Apple (AAPL) – Get a free report linger near an important area on the charts.
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