Daily Market Report - Quick Update - Wednesday, December 28, 2022

Good afternoon and happy holidays! I hope everyone is enjoying this holiday season!

I just wanted to let you know that the NASDAQ 100 ($NDX) had reached the first of two VERY significant support levels. After trading earlier this morning beneath key gap support (from the November 9th close) at 10,797.55, the NDX has recovered back to this key level. The intraday low also tested the low close from November 3rd of 10,690.60. Check out the chart:

If our finish today is strong, I would expect to see us close out the year on a positive note. However, a close today beneath gap support at 10,797 would open the door to the possibility of a double bottom at 10,481, testing the open from October 13th - the day the September CPI was reported so hot.

This may be my last DMR of 2022. I certainly hope we have a better market in 2023. After calling a top entering 2022, which proved to be quite accurate, and then calling an S&P 500 bottom in mid-June, which has been more challenging for sure (though the S&P 500 is still roughly 5% higher than it was then), we will enter 2023 with more questions than answers. While I continue to believe that 2022 represents a CYCLICAL bear market (short-term) rather than the more devastating SECULAR bear market (long-term), I do need to remain objective. Several of my growth-oriented ratios have been awful in Q4, including the XLY:XLP and IWF:IWD. Seasonally, growth stocks do tend to lag in Q4, so the start to 2023 could provide us very important signals in the growth vs. value analysis.

There has been a silver lining to the relative weakness that we've seen in our key aggressive sectors - technology (XLK), consumer discretionary (XLY), and communication services (XLC). Money that has rotated away from these growth-oriented sectors has found a home in areas like energy (XLE) and health care (XLV), which has kept our major indices mostly afloat. The S&P 500, despite being weighed down by the key aggressive sectors, will remains quite a bit higher than it was at the mid-October low. Still, we're currently seeing a death cross on the S&P 500's daily chart and the other three times we've seen that, more selling followed:

We've also seen bearish PPO centerline crosses that have fairly closely tracked those death crosses (20-day EMA moves below 50-day SMA). This isn't an easy market. There are mixed signals everywhere and the fundamentals aren't great. Of course, that's the reason we are where we are. The bear market that completely engulfed our major indices in the first half of the year has obviously predicted bad fundamentals and we've been seeing those poor fundamentals accelerate. So the big question that everyone wants to know is.....has all the bad stuff been priced in? I certainly believe that's quite possible, but I'd really like to see price confirmation.

For those of you that like to pick spots to get more aggressive with leveraged ETFs, now is the time to consider it. The QQQ (ETF that tracks the NASDAQ 100) is testing major price support from the November CPI-related gap at 262.69. A close above this level could result in a meaningful rally. A close below it, however, could lead to further selling. But I consider this level to be a major gap support, so we'll see what happens in the final two hours today.

Again, this might be the last DMR of 2022. If so, I want to wish everyone a VERY HAPPY NEW YEAR!!! Please be safe this weekend and we'll get ready to do this all over again in 2023!

Happy trading!

Tom