The Top Five Charts of 2023

KEY

TAKEAWAYS

  • 2023 was dominated by mega cap growth stocks, but the fourth quarter saw a potential change as other sectors experienced renewed vigor.
  • Three breadth indicators provided great clarity to the up and down cycles over the course of the year, as extreme readings tended to coincide with major turning points.
  • Interest rates remain top of mind as a pullback in the Ten Year Treasury Yield certainly seemed to provide support to the recent rally for stocks.

The end of the year provides a natural opportunity to look back and reflect on what we learned over the last 12 months as investors. I very much enjoyed thinking about how to tell the story of this market in just five charts, and to be completely honest, the videos below include way more than that!

But as much we love to make things more complicated for ourselves, mindful investors know that simple is often the best approach. So, by boiling down this year into five major themes and using these charts as a starting point to a deeper analysis of each, I found it to be a rewarding and at times eye-opening experience.

You can access the full playlist of the Top Five Charts on our YouTube channel, and you are welcome to ChartList I used during the videos, which you can find right HERE!

Without further ado, here are the five charts I selected, along with descriptions and video links. I hope you can use these as inspiration for your own year-end process and performance review!

Chart #1: S&P 500

As Ralph Acampora told me years ago, “Always start with a simple chart of the S&P 500.” And it’s been a fascinating year to do so, with each quarter providing a unique experience for investors, including plenty of ups and downs.

Looking back, I’m struck by what a sideways market we experienced really through the end of May. The S&P started with a strong January, but subsequent months basically brought retests of previous highs and previous lows, and no real indication of bullishness or bearishness on the larger timeframe.

June’s breakout provided a perfect example of the bearish momentum divergence, as negative momentum into the July high indicated an exhaustion of buyers. I also find myself focusing in on the October low, which caused me to be quite bearish at the time. That was definitely one of my key lessons learned in 2023, especially the importance of recognizing a clear change of character in November.

Chart #2: Ten Year Treasury Yield

Back in January 2023, I was asked during an interview to identify the most important chart to watch in 2023. I answered this chart, the Ten Year Treasury Yield ($TNX), along with the value vs. growth ratio. My thesis was that many investors had not experienced a rising rate environment (including me!), so this could mean some painful lessons as value outperformed growth as interest rates pushed higher.

As the chart clearly shows, the Ten Year Yield going from around 4% to 5%, completing a long journey from almost zero rates not long ago, did not provide the tailwind for value stocks that I expected. What a beautiful testament to the benefits of including macroeconomic analysis as part of a holistic investment approach, but also the importance of focusing on the evidence of price itself. If the charts say growth is outperforming, I’m going to want to stick with growth until proven otherwise.

Chart #3: Market Breadth

Breadth analysis is an essential component to my analytical process, as it addresses the issues related to our growth-oriented benchmarks being dominated by a small number of mega-cap stocks.

This chart includes three different breadth indicators: the S&P 500 Bullish Percent Index, the Percent of Stocks Above the 50-day Moving Average, and the McClellan Oscillator. With the first two indicators at 80% and 90%, respectively, this suggests a potential exhaustion point to the current upswing, similar to what we observed in July 2023, November 2022, and August 2022.

Chart #4: Leadership Themes

I have been thinking of 2023 as the year of mega-cap growth, but this fourth chart that it actually wasn’t about growth over value, but rather large over small. Reviewing the nine Morningstar style boxes, it’s clear that, while growth did indeed outperform value, it was overall more of large vs. small story.

Large-cap growth has outperformed large-cap value by almost 900 basis points (nine percent), but has outperformed mid-cap and small-cap style boxes by around 1300 basis points. Our benchmarks have been powering higher, propelled by the strength of large-cap growth, and one of the most important questions for 2024 will be whether this stretch of domination will continue.

Chart #5: Bitcoin

Higher highs and higher lows make an uptrend. And while Bitcoin ($BTCUSD) did not show that general pattern in the middle of 2023, it started the year strong and certainly ended the year in a position of strength.

Bitcoin has nearly tripled in value since December 2022, starting with a significant rally into an April high. But from March through October, Bitcoin basically was rangebound between 25,000 and 31,000. I remember laying out a game plan, which involved following the price momentum fueling any exit from that range. Sure enough, in October, we witnessed an upside breakout inspired by renewed optimism for a potential announcement confirming new spot Bitcoin ETFs. While that news has not yet arrived, the bullish uptrend shows that investors remain eager for this huge potential catalyst.

During my years in the Fidelity Chart Room, I was often reminded that charts can tell the best stories about market history. And as each new year concludes, the charts can provide a fantastic report card for your performance, a history textbook filled with practical lessons for years to come, and a reminder of the value of technical analysis in helping us identify opportunities and manage risk.

I hope these discussions inspire you to have a thorough review session as we wrap 2023, and an honest assessment of how you can improve your investing toolkit in 2024.

Happy holidays, thank you for making StockCharts a part of your process, and I’ll look forward to more great charts and conversations in the new year!

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!


David Keller, CMT

Chief Market Strategist

StockCharts.com


Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

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Lagging Indicators Confirm Bearish Phase For Growth

KEY

TAKEAWAYS

  • Leading indicators help anticipate price reversals, while lagging indicators validate trend changes you’ve already observed.
  • RSI combines the qualities of leading and lagging indicators, helping investors to prepare for and react to trend reversals.
  • AAPL recently showed a bullish momentum divergence, meaning the leading indicator has triggered and now it’s all about the confirmation.

I have found that novice investors think of technical analysis as fairly homogeneous. At the end of the day, technical indicators are just basically analyzing price patterns, right?

Technical analysis is actually comprised of a fairly diverse set of tools to help investors understand investor sentiment by analyzing price and volume trends. While the common thread for technical analysis is a focus on the markets themselves (through price and volume) as opposed to factors that often influence market activity (for example, fundamental or macroeconomic analysis), it turns out that there are many different ways to quantify investor sentiment through charts.

In this article, we’ll talk about two main categories of technical indicators, how leading and lagging indicators represent different approaches to price analysis, and how we can apply these concepts to the current chart of Apple Inc. (AAPL).

Leading vs. Lagging Indicators

I like to classify technical indicators into general buckets: leading indicators, which are designed to anticipate a change in trend, and lagging indicators, which are more confirmational and tell you when a trend has actually reversed.

These two categories remind me of the broader labels of growth vs. value investing.  Growth investors tend to buy strong companies in the hope that they will continue to grow earnings over time. Value investors, on the other hand, tend to invest in companies trading for less than what they are worth based on some valuation assessment.

There isn’t necessarily a “right” or “wrong” way to invest, but there are different periods where growth or value approaches will tend to be more successful. The same can be said for the different types of technical indicators, and, for many investors, a balance of leading and lagging investors is probably the best approach.

I tend to favor lagging indicators in my own technical work, although I do employ some leading indicators as well. One indicator in particular, the Relative Strength Index (RSI), combines both leading and lagging capabilities to help define the trend and recognize trend shifts.

RSI as a Leading and Lagging Indicator

Toward the end of a bullish phase, the price will often continue higher, while a momentum indicator like RSI actually rotates lower. This indicates a lack of upside momentum and indicates that the uptrend may be nearing its end. This is where RSI can help anticipate potential turning points, as the signal occurs while the current trend is still in place.

Let’s review the chart of Apple going into its July high.

Note the consistent uptrend that began in January, providing a sudden reversal from a bearish Q4 2022. When AAPL made another new high in late June, the RSI spiked up to almost 80. During subsequent price highs in mid- and late-July, the RSI peaked around 70 and 65, respectively.

This “bearish momentum divergence” suggested that while the price of Apple was still going higher, the bullish momentum propelling the price action was beginning to dissipate. Sure enough, AAPL gapped down below its 50-day moving average soon after, beginning a bearish phase that may still be in place today.

RSI can also be used as a lagging or trend-following indicator, designed more to validate a potential price reversal you’ve already observed. Notice how, during the first half of 2023, the RSI remained in the 40 to 80 range? This range is more characteristic of a bullish trend than a bearish trend.

Now look at how the entire range of the RSI pushed lower starting in August, with the RSI now rotating between 20 and 60. This shift to a more bearish range could have helped a savvy investor rotate to more defensive positioning.

Outlook for AAPL

Since the July peak, Apple has now entered a downtrend comprised of lower highs and lower lows. The RSI became oversold during the August low, but was not oversold at the September low. Now we are observing a bullish momentum divergence, providing a leading indicator of a potential change in trend.

Considering the weight of the evidence, I’m seeing the price in a clearly defined downtrend channel. The low in September came at a confluence of support, just above the 200-day moving average and right around the 38.2% Fibonacci level. Now the stock is giving a second attempt at pushing above the 50-day moving average, after an unsuccessful attempt in late August.

While the RSI divergence tells me to be ready for a reversal, the clearly defined downtrend in price on weak momentum compels me to remain on the sidelines. A break below that confluence of support around $168-170 would validate the bearish thesis and suggest further downside into year-end 2023. 

As a trend-follower, I have always felt that my main goals are threefold:

  1. Define the trend
  2. Follow that trend
  3. Anticipate when the trend is exhausted

By combining both leading and lagging technical indicators into your toolkit, you will be best prepared for changing market environments and trend reversals!

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!


David Keller, CMT

Chief Market Strategist

StockCharts.com


Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

David Keller

About the author:
David Keller, CMT is Chief Market Strategist at StockCharts.com, where he helps investors minimize behavioral biases through technical analysis. He is a frequent host on StockCharts TV, and he relates mindfulness techniques to investor decision making in his blog, The Mindful Investor.

David is also President and Chief Strategist at Sierra Alpha Research LLC, a boutique investment research firm focused on managing risk through market awareness. He combines the strengths of technical analysis, behavioral finance, and data visualization to identify investment opportunities and enrich relationships between advisors and clients.
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