You haven’t even broken your New Year’s resolutions yet, but we are already at a make-or-break point for the market.
Last year started the downfall for the market.
Now the question is will 2023 follow suit?
Stocks had been seeing a nice rebound until the correction last month.
And that brings us to this make-or-break moment today.
This earnings season, reporting for the 4th quarter of 2022, is going to be the thing to watch.
Earnings are always a pivotal moment for individual stocks, but right now it is going to show the economies hand after the sharpest interest rate hike cycle on record.
Investors know it.
That’s why we got a correction in December and have seen the broad markets trend sideways for the past two weeks.
Take a look:
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You can see how it has flatlined in the last couple of weeks, after the selloff that came on a test of the red resistance.
That downtrend is still intact and will be key to watch.
At this point, the market could be setting up for a nice rally. It’s holding higher, off the lows and easily within striking distance of the resistance level this earnings season.
You want to see it break that level, the sooner the better.
Because the longer it lingers here, the greater the risk of a market dive becomes.
Not a typical dive either.
I’m talking about another 50% plunge for broad indexes like the S&P 500.
But this is an unprecedented time.
I get the argument that the market has already collapsed. It has tumbled sharply and by most measures, has experienced a full-blown bear market.
To me, we are not there yet.
A full-blown bear market, like 08′ and the early 2000’s, isn’t a steady decline then climb right back up.
It is still classified as a bear market, but it is missing all the important signs that come with a full-blown one like we are potentially in.
The number one sign being panic.
That point where investors throw in the towel, shut off computer screens and shame the stock market forever.
We haven’t hit that yet.
Retirees are still holding.
Even retail investors are still buying the dips. It’s been painful, but they are still out there pumping up this market.
And maybe the biggest sign of all is the fluff in the market, such as meme stocks.
Those haven’t gone away just yet.
In my Flash Alerts service, we just added put options on the stock yesterday.
Because we just may finally be getting that market dive that is notorious in bear markets.
They don’t come early, or when you would be expecting them.
They come around now, just when markets are trying to get a footing, just when investors think the worse is behind them, and just as the current bear market has gone on long enough.
At that point, that’s when the bottom falls out of the market and it could come in 2023.
For now, this earnings season will play a make-or-break role in that outlook.
The longer it takes to break this downtrend, the worse the freefall will be.
Buckle up. 2023 is going to be full of more volatility.
Let’s get it!
Chad Shoop, CMT
Editor, Bank It or Tank It ELITE