British statesman Winston Churchill wrote, “Those that fail to learn from history are doomed to repeat it.” In markets, historical price patterns are the basis for all technical analysis. Meanwhile, fundamental analysis that measures supply and demand factors also compares the current or future equations to past data to forecast the path of least resistance of prices.
Market sentiment is a critical price driver, but it can push prices higher or lower than technical and fundamental factors support, leading to opportunities for nimble traders and investors with their fingers on the pulse of markets.
As 2023 comes to an end, understanding and monitoring the markets that did the best since the end of 2022 allows educated market participants to make projections for the coming year. We are always long or short any asset at the current market price, not the original execution price. Many investors and traders get in trouble by monitoring risk at execution, not the current price level. Adjusting risk dynamics is one of the most critical factors for success.
Stocks- The best indices as of December 18
- QQQ tracks the tech-heavy NASDAQ-100. At $409.16 on December 19, QQQ was 53.7% higher than the 2022 closing level.
- SPY tracks the S&P 500, the most diversified stock market index. At $474.84 per share, SPY was 24.2% higher in 2023.
- DIA follows the Dow Jones Industrial Average, which rose to a new record high last week. At $375.50 per share, DIA was 13.3% higher this year.
- IWM is the ETF that moves higher and lower with the small-cap Russell-200 index. At $200.93 on December 19, it was 15.2% higher in 2023.
Bonds- A rough year
- The continuous U.S. 30-year Treasury bond futures closed 2022 at 124-24 and were slightly lower at 124-00 on December 19. However, they fell to the lowest level since 2007 at 107-04 in October before recovering.
- The TLT ETF that tracks long-term U.S. Government interest rates moved only 0.67% lower from $99.56 at the end of 2022 to $98.89 on December 19. However, it closed far above the worst level of 2023 at $82.42 at the October low.
- The U.S. central banks pivoted from a hawkish to a dovish monetary policy approach at the December FOMC meeting. The Fed continued its short-term rate hike pause and increased forecasts for 2024 rate cuts.
Commodities- The leading raw material markets
- Gold at nearly $2,040 per ounce was significantly higher than the 2022 $1,819.70 closing level.
- Cocoa near $4,300 per ton on December 19 was substantially higher than the 2022 $2,600 closing level.
- Frozen concentrated orange juice futures at the $3.65 per pound level rallied from $2.0640 on December 29, 2022, and traded over $4 per pound for the first time in 2023.
- Many other commodity prices were on either side of their 2022 closing levels on December 19, 2023.
Cryptos- The boom is back, and the bust is gone
- Bitcoin closed 2022 at $16,543.20 per token. At above $42,400, the leading cryptocurrency was over two and one-half times higher.
- Ethereum, the second leading cryptocurrency, at $2,185 per token on December 19, 2023, was nearly double the 2022 $1,196.22 closing level.
- The crypto asset class market cap rose from $794.2 billion at the end of 2022 to the $1.59 trillion level.
Learn from the past, look towards the future, live in the present
- The price action in 2023 is a guide to the market’s sentiment over the past year.
- Markets reflect the economic and geopolitical landscapes, which will remain highly volatile in 2024.
- Always remember the current price for any asset is correct because it is the level where buyers and sellers meet in a transparent marketplace.
- Long or short investment or trading positions require a risk-reward plan that protects capital and allows for success.
- Risk-reward plans need adjustment as markets are dynamic.
- Past price action does not guarantee the future, but they are a map requiring consideration.
Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!