Editor's note: It's crucial for investors to move on from the pain we experienced last year... and start looking ahead. In today's essay, which originally ran in the January 3 Ten Stock Trader Weekly Market Outlook, our colleague Greg Diamond explains why 2023 could present a slew of trading opportunities – especially in one asset class...
I hope everyone had a great holiday break and was able to spend it with family members.
I certainly did... and I'm grateful I could enjoy that time with them.
But now, it's time to get back to work.
It's a new year, and that means a fresh start for everyone... especially investors.
In my December 15 update, I mentioned that, although Ten Stock Trader subscribers had a successful 2022, we must now forget about it.
Remember, success is not final, and failure is not fatal.
This means 2022 is now meaningless. We have to focus on 2023 and our new 12-month trading window. That's what matters right now.
And 2023 will present incredible trading opportunities, based on the various cycles I've discussed. These will obviously include the stock market... But we'll also see opportunities in both bonds and precious metals.
Today, I want to focus on the precious metals sector – and cover why it should mean good opportunities for traders this year...
Back in October, I told my subscribers that, as long as the October 13 low held in certain stocks, we would likely see major price divergence into early 2023. That, in turn, would set up a big inflection point. (In that scenario, some stocks would make new lows, while others would not.)
Well, here we are.
In that October update, I also explained that certain technology stocks would likely make new lows... Construction-equipment giant Caterpillar (CAT) and bank-related stocks, like JPMorgan Chase (JPM), were likely to hold those October 13 lows rather than make new lows.
Over the past few weeks, I've found that precious metals have started to diverge as well.
The chart below shows the relationship between gold (in black) and the Nasdaq 100 Index (in blue). The Nasdaq 100 holds the top 100 tech stocks. Take a look...
You can see the price divergence between gold and the Nasdaq 100 in early 2022. Russia's invasion of Ukraine took markets by surprise in that period, causing investors to pile into gold as a hedge against volatility.
But ultimately – as this chart implies – high inflation rates and a stronger U.S. dollar pushed stocks and precious metals into a tight correlation through late last year.
Then, that changed...
Note the two red arrows above, which mark recent divergence. The Nasdaq 100 is trending lower while gold is showing signs of strength.
OK, so what does this mean?
From a technical analysis perspective, it means we're seeing price divergence across asset classes (not just sectors within the stock market) that once traded in a tight correlation.
The price divergence between gold and the Nasdaq 100, combined with the divergence between other major market sectors, strengthens my conviction that 2023 is setting up for major inflection points. And as traders, we'll want to act on them.
Now, it's important to highlight that price divergence takes time to develop. And the key to acting on these setups is understanding the "when" – as in when to trade.
Right now, patience is key.
I'm certain we'll see more volatility in January and the coming months. In the meantime, I've highlighted the precious metals sector for two reasons...
- It bolsters evidence of price divergence and a tradable inflection point across both stocks and precious metals.
- When precious metals start trending in that manner, it signals incredible trading opportunities. As longtime Ten Stock Trader subscribers know, our two best trades have come from this sector.
I'm looking for similar trading victories in 2023.
So Happy New Year, my friends! Let's get ready to pocket more wins this year.
Greg Diamond, CMT
Editor's note: The last time Greg shared a big prediction, he said that a market crash was coming in 2022. He was absolutely right... But more important, you could have doubled your money six different times if you followed his recommendations last year alone. Now, Greg is back with a new warning... and with a strategy to help you position yourself to profit from this rare market event. Get the full story here.
"Divergence can create opportunities when the market reverses course," Greg explains. We often see this at market bottoms. And right now, divergence in two leading stocks is showing that we could be near a major buying opportunity... Read more here.
"Many investors fear buying stocks right now," Greg writes. "I'm trading the other side of this fear." Learn more about the bullish technical signals he's watching – and why he says today is not like the crash of 2008 – right here.