As 2022 comes to a close, it’s time to start thinking about next year’s investment and trading roadmap.
It happens every year, and this year is no different. The end of the year, among other things, is a time for reflection and thinking about the following year. For individual investors and traders, it means a time to strategize your investment plan. No doubt 2022 was a challenging year. The bull market stalled, Russia invaded Ukraine, interest rates rose, and inflation impacted just about everyone.
If there was one phrase to describe the 2022 stock market, it would be “jumping just like a pogo stick”, springing up on good news, and falling on bad. It’s possible that a similar type of behavior may dominate the financial markets in 2023. If it does, it means you will need to be more strategic, disciplined, and engaged with the markets. But there’s no way of knowing what could happen in the stock markets. That’s why having the Stock Trader’s Almanac 2023 (herein referred to as “Almanac”) as part of your trading toolkit can be a helpful guide as you plan your trades for the next year.
How Can the Almanac Help?
Imagine being alerted to favorable trading days, or knowing the probability of the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite rising on any given trading day. Want to get a heads-up on what to expect around options expirations and holidays? Also, given that 2023 is a pre-election year, what unique characteristics will you need to consider? While there are no guarantees when it comes to the financial market, having the Almanac at arm’s length can help you connect with the market, which, in turn, can increase your market awareness.
There are many ways the Almanac can help. You can identify bullish and bearish days; you can see the probability of up days for the three broader indexes in each day in the planner; you can get stock and exchange-traded fund (ETF) updates; and you can get many more valuable insights. Here are five important ones.
1. January Indicator Trifecta: Santa Claus Rally, January Barometer, First Five Days
You’ve probably heard of the Santa Claus Rally—it starts at the end of December and carries into the first two trading days in January. According to the Almanac, since 1969, the average gain during this short period is 1.3% and, if Santa fails to show up, either a bear market is lurking or, later in the year, you could pick up a handful of stocks for a bargain.
January is an important month in the stock markets. Heard the adage, “As January goes, so goes the year?” That’s the premise of the January Barometer. In the Almanac, you’ll find a graphic representation of the January Barometer, which compares the January change to the full-year change. The data goes as far back as 1950 and you’ll see that only a few years were major errors.
You may be anxious to start trading on the first trading day of 2023, but it may be wiser to wait it out and see how the first five trading days of the year pan out. The Almanac has a short write-up about how January’s first five trading days can be an early warning system for the year. For example, the Almanac states, “S&P gains in January’s first five days preceded full-year gains 83% of the time, 13 of last 18 pre-election years followed first five day’s direction.” It goes on to provide helpful statistics, such as how the indexes performed during the month, which years were the best performers, which years were the worst, performance during options expiration week, and so on.
How To Use the Info in StockCharts
Bring up a daily chart of the S&P 500 Index ($SPX).If the best day for $SPX was on January 3, 2001, from the Range dropdown menu, click Select Start/End (use December 31, 2000–December 31, 2001). Then, compare it with the five-day change and the year change. Follow a similar process for the worst day, try it with other indexes, and try out different dates from the Almanac. Have fun with it.
2. The Sweet Spot of the 4-Year Cycle: Q4 Midterm Year to Q2 Pre-Election Year
Remember, 2023 is the third year of a presidential term. According to the Almanac, there has only been one down year in the third year of a presidential term since 1939. The four-year political stock market cycle is interesting—there’s a strong chance we may have seen the midterm bottom in October 2022. What does this mean going forward? Once again, the Almanac can provide some insight.
3. The Best Months Switching Strategies
These strategies have a 72-year track record and can form a base to plan your trading strategies for 2023. While reading about the different strategies, make notes in the planner so you can put your thoughts down, plan ahead, and modify when necessary.
Four of the switching strategies are:
“Best Six Months”MACD-Timing With “Best Six Months”Nasdaq’s “Best Eight Months” With MACD TimingTriple Returns, Fewer Trades: Best 6 + 4-year Cycle
It’s worth knowing each of these strategies, as they could help you potentially do better than a buy-and-hold investment strategy.
4. More Seasonal Patterns
What’s the best month for the Dow Jones Industrial Average? What about the other indexes? In the 2023 Almanac, you’ll find seasonal pattern charts for the broader indexes for pre-election years vs. all years. This visual representation gives you an idea of which months are likely to perform better than others. In short, you’ll know when to potentially add, hold, or sell positions.
5. Sector Seasonality
If you’ve been involved with the markets for a while, you should know that different sectors go through positive and negative seasonal periods. So which sectors should you be holding, and when? You’ll find a sector index seasonality table listing the various sector indexes represented by their ETF proxy. The start and end of the seasonality are displayed along with the 25-, 10-, and 5-year average percentage returns. Each month is divided into three parts—beginning, middle, and end. Can you guess which month is positive for most of the sectors?
If you have the Almanac, you can start looking at the sectors a month or so ahead of when the seasonality begins. Again, make notes in the planner to give you a heads-up. Consider creating an Almanac ChartList in your StockCharts platform.
Some Sector Tools in StockCharts
The Sector Summary in StockCharts displays the performance of the 11 S&P sectors. The Industry Summary breaks down the sectors even further by looking at specific industries within the sectors.The Sector PerfChart is an interactive visual chart that displays sector performance.
The Bottom Line
When it comes to the stock markets, you can never be truly prepared. The best you can do is work with probabilities, and the Almanac can be a big help. It gives you an overall view of the market, zeros in on different cyclical patterns, and drills down to fundamental and technical indicators. The month-by-month strategies, and the explanations of seasonal trends and sector performances, can help you become a more empowered trader and investor.
One last word: Keep an eye on the December closing low. That, as you’ll find out from the Almanac, can have a big impact on next year’s performance. So get a head start and start planning for 2023. Then, it’s on to the next-next year.
Jeff Hirsch, Editor in Chief of the Stock Trader’s Almanac (order here!), will be a guest on The Final Bar on December 12, 2022. Tune in!
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.