Finally we are have completed the first month in 2023. The market is looking up after a choppy 2022 performance. Where will the stock market goes in 2023? Will it continue the bear sentiment in 2022 or finally turn back up again? This must be on the mind of all traders.
Review Of My Article Last Year In 2022
This is an update to my article last year (“Where Will Stock Market Goes In 2022?“) where I use the studies by Jay Kaeppel and warned of a volatile year in 2022. I also took a lot of shorter trades and it serves me well.
So I am going to use that same study again to assess how will the stock market move in 2023. Do note that this is not an investment advice but more of sharing what I am using to help guide myself in my own trading journey.
How Did First Month of 2023 Goes?
Let’s have a look at the chart from TradingView. Below is what the first month of 2023 for S&P 500 (SPX). It ended higher which is a good sign. I’ll explain in the next section.
Where Will Stock Market Goes in 2023?
This books identified 13 different trends based on studies spanning over past 70 years in the market. It is definitely a good reference to use. But do treat it as a reference only. You should still do your own further analysis.
With that said, I use the following trends within that book. Do refer to it if you want more details of the other trends.
Trend 1 – Jay Newary Barometer Based on January Market Performance
For this trend, Jay used the performance of the market in January to gauge the probability of a bull market for rest of the year. This barometer has a success rate of 71.4% for getting the market direction correct.
For this analysis, I extracted out the following close price for SPX (based on the chart which I attached above):
3 Jan 2023 – Closed at 3,824 (1st trading day)
9 Jan 2023 – Closed at 3,892 (5th trading day)
25 Jan 2023 – Closed at 4,016 (last 5th trading day in January)
31 Jan 2023 – Closed at 4,076 (last trading day in January)
This barometer looks at the following 3 key parameters:
1. Performance of market in first 5 trading day of January.
In 2023, this shows a up signal.2. Performance of market in last 5 trading day of January.
In 2022, this shows an up signal.3 Performance of market in January as a whole
In 2022, this shows a up signal.
Based on Jay’s analysis of past years using this trend, there is a 92% probability of the market will end up higher by end of 2023. This is the first encouraging sign.
Trend 2 – Yearly Seasonal Trends
Based on the studies from 1900 to 2007, on average past similar years with year number ending with 3 tends to have:
Average annual gain of 9%
Market tend to go up (100% of the sample size in this study)
This is the second encouraging sign.
Trend 3 – Election Cycle
The next United States election will be held in 2024.
We are now in the “Pre-election” period this year. Based on Jay’s studies (covered in details in his book), 94.7% of the years ended up for the stock market.
The best period to trade in the stock market was found to be from 30 September to 31 December of the pre-election year.
This is the third encouraging sign.
Observation 4 – SPX Performance in Jan 2023
The last trading day ended above SMA 50, SMA 150 and SMA 200. The SMA 50 is also above the SMA 150 with both sloping upwards.
This intends that at least in the short-term, the market is on an uptrend. This is the forth encouraging sign.
I am now waiting for the SMA 200 line to be sloping upwards and going below SMA 50 and SMA150 to confirm that the long-term uptrend has formed.
In Summary On Where Will Stock Market Goes In 2023?
With reference to the above trends and observations, there is a high probability of stock marketing ending up this year. Do note that market don’t go up in a straight line. It will retrace before bouncing back up again.
Having said that, I am more optimistic trading this year. Let’s go for it.
To Your Trading Success,
Keith Choy
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