The Only Prediction For 2023 You Need To Make

The only prediction you need to be right about: Which way is the market going? Will it be a bull market or will it be a bear market?

For the main part I believe 2023 it is going to be a bear. The market is extremely unlikely to be higher at the year end than now, even if there is a rally at the year end.

The direction of the market over the medium and long term is the key to investing. We all know we are a genius in a bull market and even the sketchiest of stocks go up when the market is on a tear. We all feel like an idiot in a bear market and all those superstar shares still fall heavily, however great the narrative was to send them up to hefty valuations before the bear struck. Any old story sends stocks skywards in a bull and even great news sends stocks down in a bear. Depending on the market, good news can be bad news, bad news can be good news and good and bad news can be no news at all.

So the big call is “which direction is the market going in 2023?”

Sadly I believe the market is going down heavily, at least for most of the year, and perhaps we may see the final leg down for equities in 2023. This will be the capitulation normally seen at the end of a bear market. There might just be a recovery at the year end following that fall. The thing to keep in mind is the market is not looking today at the economic realities of now but instead it is trying to guestimate the realities about one year out. It will flip into a bull when it sees a recovery is about a year away. That dynamic could trigger at the tail end of 2023.

If the recovery isn’t going to happen until 2025 then it will be down the whole year unless we get a crash, which would be the reset moment defining at least the bottom of this bear market. The Wall Street crash was a bear for two years. The dotcom was a bear for two years, too. The Global Financial Crisis (credit crunch) was 18 months long, so it’s a good estimation to guess we are in the same kind of bear turning around at the earliest in the second half of the year or ploughing on into 2024. The only thing that might make the bear go on longer than two years is an attempt by central banks and governments to make the bear shallower by making it longer. It will be a temptation but not one on the table if inflation is to be tamed.

Here is the key chart: The Nasdaq:

I like to try and triangulate various tendencies. The rectangular area is extremely likely in 2023. There are two potential trend lows and when you put them together you get a low of the year in and around 7,500. These are projections that stem from a continuation of the status quo. An inflation adjusted 10,000 is about the Covid crash low, which the hopeful will expect to be the base of this bull market and where we are right now. Sadly there is more tightening to come and that can only be bearish and be bearish for many months to come, so the nominal lift from inflation is not likely to support the market in the short and medium term.

If you want early warnings then you need to watch bitcoin, because asset values are hit by tightening and the frothy assets get hit first and thereby give out an alarm of what is to come on stodgier high quality assets.

If you want a more substantial bellwether then watch Apple.

Here is the chart:

I’m no Apple expert but that looks like a very ugly bearish chart to me. I highlight the Covid crash because a lot of companies and indices have found their way back to that level in the last year, while Apple has stayed somewhat afloat.

If Apple breaks down—and it looks to be already on the way—then we will be fast heading towards the bottom of this bear market as a sub-$100 Apple will make a mess of the indices all on its own. If any stock can defy this bear it is Apple, so it is the one to watch as its price action will be definitive.

January will be pivotal and unless there is a wild change in fortunes it’s going to be a cold new year for investors.