Markets continue to climb the “wall of worry” as the indexes encroach on resistance and new recovery highs. The battle to break the long downtrend line from the January 2022 highs rages on, highlights Jeffrey Hirsch, editor of Stock Trader's Almanac.
The Dow Jones Industrial Average was the first to breakthrough last November. Then it tested it during the early December pullback. The rebound put DJIA firmly above its 200-day moving average and, in the process, generated a golden cross with its 50 DMA crossing above the 200 DMA.
The Russell 2000 was next, finally clearing the downtrend earlier this month along with its 50 and 200 DMAs as the January Effect of small caps outperforming large caps in January materialized. On pages 112 and 114 of the 2023 Stock Trader’s Almanac, we detail how this January Effect really begins in mid-December and often runs through March.
The tech-heavy NASDAQ and the S&P 500 are just now poking through their downtrend lines with S&P surpassing its 200 DMA. NASDAQ is still below its 200 DMA but it’s on a tear this year, leading the averages with a 10% gain for the year so far.
![[Trifecta after bear Chart]](https://msgraphics.blob.core.windows.net/content/article-img/article-img/dailyguru60446.png)
Some of the sentiment readings we track like Investors Intelligence US Advisors’ Sentiment Report have shown an uptick in bullish sentiment with more bulls than bears since mid-November. But there are still countless retail investors, traders, Wall Street analysts and pundits that remain adamant bears. We continue to receive bearish retorts to our bullish outlook and commentary.
Most expect a recession this year, inflation not to ease, earnings to continue declining and the Fed to overreach on rates. We contend that there was an “official” recession last year with two consecutive quarters of negative GDP in Q1 and Q2. Earnings are forecasted to bottom in 2023 Q2 and the Fed is nearing the end of rate increases.
In the words of our late founder Yale Hirsch, the market is a barometer, not a thermometer. It is a forecasting mechanism that looks past the valley of economic despair to the bright future 6-8, even 12 months down the road. Our contrary antennae continue to purr, and we are considering ordering a batch of DOW 38820 T-Shirts.
In fact, we are upping the ante and tilting our 2023 forecast towards our Best-Case Scenario for above average pre-election-year gains of 15-20%, perhaps more, especially for NASDAQ as the tech wreck appears to be over with several big tech names cleaning house and bouncing back.
Recommended Action: Stay long the stock market.
