Trading with AlphaVL: The Newsletter for Growth and Momentum Investing

 Are you a Bull or Bear? Should you Hold ‘Em or Fold ‘Em? Get the latest investing advice from Trading with AlphaVL

 2022 truly was an unprecedented year for investors, with the S&P 500 reaching a record high on January 3rd. This event is made more remarkable as it also marked the first time since 1977 and the very first time ever that 2022’s highest peak was also its yearly crest for the index.

The year initially began on a good note for stocks, with the S&P 500 hitting its highest watermark for the year on day one – as stated previously, an unprecedented event. However, just months later, stock prices began to decline sharply, with particularly drastic drops in tech stocks and more speculative investments. Around the same time, crypto had also taken a hit as news of the Sam Bankman-Fried scandal spread throughout the market. It soon became clear that far from being a bright start to the year, 2022 was marking a long and difficult decline in stock prices.

Financial historians will note that the Federal Reserve began setting us up for a new cycle of higher interest rates. When rates go up, it usually isn’t great news for stocks and historically, this could have the potential to spark a lengthy period of stagnant growth - like we saw in 1966-1982. However, it is important to note that such an outcome should not be taken as certainty. On top of this, it is also worth noting that the Fed receives no shortage of criticism when they take a tough stance on raising rates - just ask former Fed Chair Paul Volcker who put inflation in its place in the 80s and dealt with no end to opposition. The upside? He is now seen as a highly respected figure of economic lore so perhaps there is light at the end of the tunnel.

Santa was a no-show last week as yields crept higher sending stocks lower additionally the major averages were hit with tax selling after coming back from the long holiday weekend.  For the period, the DJIA lost 56.68 points (-0.2%) and settled at 33147.25. The S&P 500 eased 5.32 points (-0.1%) and closed at 3839.50. The NASDAQ gave up 31.38 points (-0.3%) finishing at 10466.48, while the small cap Russell 2000 picked up 0.32 point (+0.0%) finishing at 1761.25.

On Friday the Breadth was mostly negative with declining issues beating advancing issues by 314 units on the NYSE and 84 units on the NASDAQ. Declining volume was 56% on the NYSE, but advancing volume was 58% of the NASDAQ. The VIX rose 0.23 (+1.07%) and closed at 21.67. Crude oil prices jumped 1.95 (+2.53%) and the February contract closed at $80.38 a barrel. Gold prices rose 3.40 (+0.19%) and finished at $1829.40 an ounce.

The most current release of the CME Fed Watch shows the range for Federal Target Rate to be 425 – 450 BPS with 67.7% of the participants surveyed thinking in terms of a 25BPS rate increase at the February FOMC meeting and 32.3% in the 50BPS camp.  Personally, my feeling is that the earning releases of late January and early February 2023 will shift this range higher.

My target range for the S&P 500 for 2023 is 3500/4500.  Most likely the year will begin with a continuation of the current trend down until mid-year followed by a flat summer session with recovery beginning post Labor Day and running through year end. 

My current work leaves me stuck in the middle between a Bullish and Bearish stand for the open on Tuesday and truthfully, I am not very comfortable admitting that a Neutral Call (Sideways) is where I will open the New Year on January 3^rd.  Like most of you I want to have my ten to fifteen working ideas set to go when the bell rings and then jump on the Trend and trade the days away.  

The universe which I follow starts with 549 names that are then reduced to an acceptable list of 312 qualified names based on fundamentals and technical indicators. The next step in the process is searching for names that are approaching new highs or new lows with acceptable levels of Open Interest and volume.  Friday’s spreadsheet was reduced to 15 Buy Side names along with 28 Sell Side and 29 Neutral names identified. 

What to do now: Review your work for the past year, learn from both your successes and your failurees, grow from your work.  Set higher standards for your performance in 2023,  review your work frequently and hold yourself accountable.  Make a commitment to excellence and then move towards those goals one day at a time.

To access the current copy of the data behind our trading please follow this link: Trading with AlphaVL

Good luck and Good Investing!