Major market indexes finished 2022 still within overall downtrends on their weekly charts below, with the S&P 500 and NASDAQ Composite Indexes within narrow downtrend channels while the Dow has exhibited great volatility in a widely broadening downtrend channel. The Dow held support at its 40-week moving average at the end of the year, but as we have noted previously, when 30 Dow stocks are leading the market while the broader S&P and NASDAQ indexes flounder in more well-defined downtrends it does not tend to result in a roaring bull market and is in fact cautionary. This has proven out in December and as we roll into the New Year.
A major theme in 2023 may be the fate of the dollar. While interest rates such as the 10-Year Treasury Yield ($TNX) rallied into year-end with the $TNX closing the year at 3.879% and back above its 50-day moving average, the dollar has remained weak, ending 2022 by posting lower lows. This is often pointed to as indicative of an impending Fed pivot, but we would note other factors that could weigh on the dollar in 2023. That would be the loss or severe diminishing of the dollar's reserve currency status as other countries, including the BRICs (Brazil, Russia, India, and China) and various other Asian, Eurasian and Middle-Eastern countries, begin to seek alternatives to the dollar as a trade currency.
Since the dollar peaked in September-October precious metals have been in sharp uptrends off their own September and October lows on their weekly charts below. This is prima facie evidence that any continued decline in the dollar in 2023 would likely remain very bullish for gold and silver.
And if the dollar declines and precious metals rally then we would expect to see the miners and related stocks perform well. Indeed, gold miners like AngloGold-Ashanti (AU), El Dorado Gold (EGO), and Gold Fields (GFI), and gold production stream owners like Osisko Gold Royalties (OR) have all correlated to the action in precious metals with sharp rallies off their September-October lows as we see on their weekly charts below. We note that AU is forming an ascending flag formation, EGO a four-weeks-tight bull flag, GFI a seven week base with a current pullback to its 10-week and 40-week moving averages, and OR a pullback into its 50-day moving average on the daily chart which translates into a slight 1% pullback just below its 10-week moving average on the weekly chart.
Silver miners First Majestic (AG), Buenaventura Mines (BVN), MAG Silver (MAG), and Pan-American Silver (PAAS) had somewhat less robust moves off their September-October lows than the golds, but have still rallied in synchrony with gold and silver off those lows. These four names are currently forming bases that for now remain unresolved, although as with the golds, above, pullbacks into moving average support can always serve as potentially lower-risk long entry spots using the same moving averages as selling guides. We will report on developments in the precious metals space as appropriate during the New Year and as the current trends continue or fail.
While precious metals find favor in a negative correlation to the current dollar downtrend from the Fall 2022 highs, Bitcoin ($BTCUSD) has correlated to the dollar as it has declined since September-October right along with the dollar. While some at one time touted $BTCUSD as "the new gold" the reality is that the two assets are entirely different. Crypto-currencies in general gained favor as speculative, get-rich-quick vehicles rather than useful measures of exchange or stores of value while precious metals have retained more stability as traditional alternatives to fiat currencies. However, once all the excess and corruption has been squeezed out of the crypto space, the situation for $BTCUSD may improve, but for now it remains in a seven-week bear flag and appears poised for lower lows on its weekly chart, below, after most recently offering a near-term short-sale entry at the 10-week line three weeks ago.
Our expectation for 2023 is that the Fed will at some point during the year reverse its current hawkish monetary stance. When this occurs, it will likely unleash some interesting market dynamics. For now, the major market indexes remain in downtrends after the 2022 bear market year. The Market Direction Model (MDM) remains on a SELL signal.