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The Price Action Lab Report-Week of January 23, 2023 [Premium Articles]

Photo by Burak The Weekender

Market analysis for the week of January 23, 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.

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 17 – January 20, 2023)

  • Stocks fell but ended the holiday-shortened week off their lows.
  • Bond prices were slightly higher, and yields fell.
  • Commodity gains were driven by energy and metals markets.
  • The US dollar’s decline against most major currencies continued.

The US dollar and equities, except technology and high-beta stocks, fell during the holiday-shortened week. The rebound in riskier and longer-duration assets continued but at a decreasing pace. Bonds gained but ended the week off their highs. The rise in crude oil prices due to the expectation of increasing demand from China continued. Precious metals gained as bond yields fell.

Large-cap stocks ($SPX) ended the week down 0.7% after dropping as much as 2.8% in the first three days of the holiday-shortened week. The Dow Jones Industrial Average ($DJI) lost 2.7%. Small caps ($RUT) fell 1% after a gain of 5.3% the previous week. Tech stocks ($NDX) and the S&P 500 high beta index ($SP5HBI) gained 0.7% and 0.6%, respectively, due to the expectation of longer-duration and riskier assets benefiting from a possible Fed pause. The S&P 500 low volatility index ($SP5LVI) fell 2.4% as investors took on more risk.

US Treasury Bonds ($SPBDUSBT) gained 0.1% due to the expectation of a recession and a Fed pause. The 10-year note yield fell three basis points to 3.48%. The spot price of crude oil (@WTI) was up 1.7% after surging 8.3% the previous week due to the expectation of rising demand from China. Spot gold (@GC) gained 0.9%, and it is now overbought in the daily timeframe. The CRB index ($CRB) rose 0.9%, primarily due to gains in energy and base metals. The US dollar index ($USDX) fell 0.2% on top of a 1.6% loss the previous week.

Year-to-date, the S&P 500 high beta index ($SP5HBI) is up 10.7%, followed by gold (@GC) and tech stocks ($NDX) with 6.2% gains, and small caps ($RUT) with a gain of 6%. The US dollar index ($USDX) is down 1.5%, and the S&P 500 low volatility index ($SP5LVI) is down 1.3%. The rally in tech and high-beta securities has been fueled primarily by the losses in the US dollar and sales of lower-risk stocks. This dynamic is not stable and can reverse direction.

Performance of International Markets

All of the 34 international markets we track are up year-to-date except for Turkey (TUR), which is down 0.2% after a 10.1% gain last week. Mexico (EWW) is up the most (+15%). Several international markets are overbought, and a few are highly overbought. Spain (EWP) and Austria (EWO) have been overbought for 10 days in a row. Colombia (GXG) and Germany (EWG) have been overbought for eight days in a row.

The ensemble of our six systematic strategies is nearly flat year-to-date, compared to a 3.5% gain for the S&P 500 index and a gain of 3.4% for the 60/40 portfolio with SPY and AGG ETFs. Our PSI5TF trend-following strategy with 23 futures contracts (long and short) is down 1.8% after gains of about 24% last year. Trend-following had a slow start after a good run last year. For example, the KMLM ETF is down 4.4% year to date (see Section 6 of the report).

2. Chart Of The Week

Gold Approaching All-Time Highs

Gold (London PM Fix) is 6.9% below the all-time closing high of $1,936.55 per ounce reached on July 27, 2020. Since April 1, 1968, gold has risen 5,006% with an annualized return of 7.4% and a 70% maximum drawdown. During the same period, the S&P 500 had a 7.1% annualized return before dividends and a 57% maximum drawdown.

Gold has shown resilience during the recent rise in interest rates, with net gains overall due to geopolitical uncertainty. Last year, despite the rally in yields, gold fell less than 1%. Gold remains a highly speculative asset that pays no interest or dividends, and the risks from central bank sales remain high. However, it appears there is a growing interest in including gold in strategic allocations.

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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