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The Price Action Lab Report-Week of January 2, 2023 [Premium Articles]

Photo by Burak The Weekender

Market analysis for the week of January 2, 2023. Major market indexes, ETFs, commodities, and forex. This report includes 20 charts and tables. Access to the full report requires a Premium Articles or an All-in-One subscription.

In observance of New Year’s Day, U.S. securities exchanges will be closed on Monday, January 2, 2023.

Happy New Year! We send our best wishes to you and your family. Thanks for choosing our service. Wishing to serve you again in this New Year.

Report contents

  1. Weekly and Yearly 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 (December 27 – December 30, 2022)

  • Stocks fell for the fourth week in a row but closed off their lows.
  • Bonds had another down week with yields rallying.
  • Commodities fell slightly after two weekly back-to-back gains.
  • The US dollar finished the week lower against most major currencies.

In the holiday-shortened week, the US dollar fell, and spot gold and crude oil had small gains. Stocks fell but closed off the lows of the week. The profit-taking in bonds continued after a brief relief rally.

Large-cap stocks ($SPX) ended the week down 0.1%. The Dow Jones Industrial Average ($DJI) fell 0.2%. Small caps ($RUT) ended the week unchanged. Tech stocks ($NDX) lost 0.4%. The S&P 500 high beta index ($SP5HBI) gained 0.2%. The S&P 500 low volatility index ($SP5LVI) was down 0.7%.

US Treasury Bonds ($SPBDUSBT) fell 0.7% due to the release of data during the previous week suggesting the economy is still robust. The 10-year Note yield gained 13 basis points to end the year at 3.88%. The spot price of crude oil (@WTI) increased by 0.8%. Spot gold (@GC) gained 0.6%. The CRB index ($CRB) fell 0.1%.

For the year, the CRB index gained the most (19.5%), the US dollar index was up 8.2%, and spot crude oil rose 6.4%.These markets had wide swings throughout the year, as shown below.

Spot crude oil had gained 64.2% by March 8, 2022, and after wide swings, the gains were limited to 25.1% by April 11, 2022. Then, another rally started that peaked on June 8, 2022, with spot crude oil gains for the year rising to 61.9%. A downtrend started primarily due to sales of strategic reserves in the USA, and by December 9, 2022, all gains had evaporated and spot crude oil was down 5.8% for the year. Due to a rebound from the lows, spot crude finished the year up 6.4%.

The swings in the CRB index were not as pronounced as in crude oil, but there was a significant reversal after June 9, 2022, when the index was up 41.8% for the year. The downtrend and consolidation limited the gains of the CRB index for 2022 to 19.5%.

The US dollar index had a steady uptrend that peaked on September 9, 2022, with the gains for the year at 19.3%. Then a downtrend started, and the index finished 2022 up 8.2%.

In the case of stocks, the downtrend started in the first week of 2022 with three major and two minor relief rallies, as shown in the chart below.

Due to higher interest rate sensitivity, technology and growth stocks were hit the hardest in 2022. Small- and large-cap stocks (RUT and SPX) moved in synch and ended the year down 21.6% and 19.4%, respectively. Tech stocks (NDX) fell 32.9% for the year. This was the fourth-largest yearly drop in tech stocks since 1985.

Total return equity indices

The total-return equity indices were mixed for the holiday-shortened week, and the changes were relatively small. The S&P 500 low volatility index fell the most (-0.6%), while the S&P 500 value index was up 0.3%. There are no overbought or oversold total return indices.

In 2022, the S&P 500 low volatility index was down the least (-4.6%) and 6.4% below all-time highs. The Dow Jones Industrial Average index fell 6.9% and ended the year 8% below all-time highs.

The S&P 500 total return index ended 2022 with a loss of 18.1% year-to-date and 18.6% below all-time highs. The NASDAQ-100 was the worst-performing index, down 32.4% for the year and 33.4% below all-time highs.

The ensemble of our six systematic strategies ended 2022 with a loss of 6.4%, as compared to a 19.4% loss for the S&P 500 index and a loss of 16.1% for the 60/40 portfolio with SPY and AGG ETFs. Our PSI5TF trend-following strategy with 23 futures contracts (long and short) ended 2022 with a gain of 24.4%, as shown in the backtesting below.

All in all, 2022 was a good but volatile year for commodities and trend-following, a bad year for stocks, and a disaster year for bonds. Capital destruction was the main theme in markets for 2022. 

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2. Chart Of The Week

Number of Days in a Year Down More Than 2%

In 2022, the S&P 500 fell more than 2% in 23 days, and this was the fifth year since 1945 with the highest count. Although similar statistics have been used frequently in blogs and on financial media to describe the adverse market conditions in 2022, note that in 2009 and 2020, the count was higher but the market had strong gains of 23.5% and 16.3%, respectively. A high number of days with large losses is not sufficient for a down year; the magnitude of up days eventually determines the market’s performance.

3. Market Performance Recap

If you have any questions, you may contact support.

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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