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The Price Action Lab Report-Week of January 16, 2023 [Premium Articles]

Photo by Burak The Weekender

Market analysis for the week of January 16, 2023. Major market indexes, ETFs, commodities, and forex. This report includes 15 charts and tables. Access to the full report requires a Premium Articles or an All-in-One subscription.

U.S. securities exchanges will be closed on Monday, January 16 for Martin Luther King, Jr. Day.

Report contents

  1. Weekly Summary.
  2. Chart of the Week.
  3. Market Performance Recap.
  4. Major Market Indexes.
  5. Commodity ETFs and ETNs.
  6. Strategy ETFs.
  7. Spot Currency Pairs.
  8. Strategic Allocations.

1. Weekly Summary (January 9 – January 13, 2023)

  • Stocks continued to rally due to expectations of inflation dropping further.
  • Bond prices were higher and yields fell after reports of falling inflation for December 2022.
  • Commodities had solid gains in energy, metals, grains, and softs.
  • The US dollar decline against most major currencies accelerated.

The US dollar and low-volatility stocks fell. Riskier assets rallied. The rebound in the bond market continued after the December 2022 CPI showed a declining rate of inflation. Crude oil surged due to the expectation of increasing demand from China as the virus situation improved.

Large-cap stocks ($SPX) ended the week up 2.7% after a quick test of support on the first day of the week. The Dow Jones Industrial Average ($DJI) gained 2%. Small caps ($RUT) surged 5.3%. Tech stocks ($NDX) ended the week with a gain of 4.5%. The S&P 500 high beta index ($SP5HBI) rallied 5.9% due to risk-on. The S&P 500 low volatility index ($SP5LVI) fell 0.5% as investors sold lower-risk stocks to buy higher-risk ones in an attempt to recover losses from the previous year.

US Treasury Bonds ($SPBDUSBT) gained 0.5% due to the inflation rate falling in December 2022. The 10-year note yield fell six basis points to 3.51%. The spot price of crude oil (@WTI) surged 8.3% due to the expectation of rising demand from China as the virus situation improves. Spot gold (@GC) gained 3%, and it is overbought in the daily timeframe. The CRB index ($CRB) rose 4.2% due to gains in energy, metals, grains, and softs. The US dollar index ($USDX) fell 1.6%.

Year-to-date, the S&P 500 high beta index ($SP5HBI) is up 10%, followed by small caps ($RUT) with a gain of 7.1%. The US dollar index ($USDX) is down the most, at -1.3%.

Performance of International Markets

All of the 34 international markets we track are up year-to-date except for Turkey (TUR), which is down 9.3%. Mexico (EWW) is up the most, +14.6%. Most international markets are overbought or are close to becoming overbought. Peru (EPU) and Spain (EWP) are two overbought international markets with a 14-day RSI above 80 and in overbought territory for six days. All international markets are below their all-time highs, but the United Kingdom (EWU) is down the least at 3%.

The ensemble of our six systematic strategies is up 0.3% year-to-date, compared to a 4.2% gain for the S&P 500 index and a gain of 3.7% for the 60/40 portfolio with SPY and AGG ETFs. Our PSI5TF trend-following strategy with 23 futures contracts (long and short) is up 0.9% year to date.

2. Chart Of The Week

Inflation Fell But Not by Much

The 24-month rate-of-change of the Consumer Price Index (CPI) is at 14% and has been consolidating since June of last year, when it peaked at 14.9%.

Fluctuations in CPI values are frequent. Two of the recent largest declines were in 2008 and 2014, by -4.4% and -2%, respectively.

As may be seen from the above chart, despite any fluctuations, the CPI level has been constantly rising. The CPI has always been on an uptrend. Although the rate of change of the CPI fluctuates, the level of inflation constantly rises and erodes purchasing power. Inflation always rises in the long term. The objective is to control the slope of the price series. From 1982 to 2020, the CPI rose at an annual rate of about 2.6%. In the 2021–2022 period, the rate jumped to 6.7%. Any claim that “inflation fell” is not justified at this point. A significant drop in the level of prices (CPI) is required for this claim to be valid.

3. Market Performance Recap

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Specific disclaimer: This report includes charts that may reference price target levels determined by technical and/or quantitative analysis. No charts will be updated if market condition changes affect the charts’ levels and/or any analysis based on them. All charts in this report are for informational purposes only. See the disclaimer for more information.

Disclaimer:  No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting and backtesting program: Amibroker. Data provider: Norgate Data

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