Technical indicators underperformed buy and hold strategy in 2023, emphasizing the limitations and artful nature of technical analysis.
Builder stocks in the housing market benefited from low inventory, allowing for higher profit margins and lower mortgage rates.
Individual skill and experience are crucial in utilizing technical analysis effectively, as it provides insights into market trends and patterns.
Tech companies, particularly in semiconductors, are investing heavily in infrastructure and innovation, indicating positive economic growth.
Deep dives
Buy and hold strategy outperforms technical analysis in 2023
According to a backtest by Bloomberg, technical indicators and strategies underperformed a simple buy and hold strategy in 2023. The analysis showed that selling signals generated by technical indicators led investors to miss out on significant gains in the market, with the S&P 500 rallying by $7 trillion throughout the year. The article emphasized that technical analysis should be seen as an art, not a science, and that no single indicator can be relied upon for accurate predictions. While technical analysis has its limitations, it is important to note that no investment strategy works perfectly all the time.
The misunderstood housing market in 2023
Podcast guest Logan Modashami, a housing market analyst, discussed the complexities of the housing market in 2023 and debunked some common misconceptions. He highlighted the unique advantage builder stocks had due to low inventory in the existing home sales market and the higher profit margins they enjoyed. This enabled builders to offer lower mortgage rates and attract buyers while keeping supply in check. Modashami also addressed concerns regarding the impact of lawsuits against realtors and brokerages, explaining that the legal rulings and potential changes in how buyers' agents are paid could affect the housing market. Overall, he emphasized the need for more focus on building homes to address the housing supply issue.
Technical analysis and the debate over its effectiveness
An article from Bloomberg examined the performance of technical analysis strategies in 2023 and found that many indicators underperformed compared to a buy and hold strategy. The article acknowledged that technical analysis is not a perfect science and that its effectiveness depends on the individual practitioner. It also highlighted that technical indicators should not be used in isolation and that the weight of evidence approach is often preferred. While technical analysis may not always be accurate, it can still provide insights into market trends and patterns, but it requires skill and experience to use effectively.
Tech companies' high capital expenditure compared to energy and materials sector
Crescat Capital shared a chart showcasing the higher annual capital expenditure (CapEx) of S&P 500 tech companies, including Amazon and Alphabet, compared to the combined spending of the energy and materials sectors. This highlights the significant investment being made by tech companies in areas such as infrastructure, cloud services, and semiconductor equipment. The chart indicates that tech companies are allocating substantial resources to support their growth and innovation strategies.
Semiconductor stocks continue to surge
Semiconductor stocks, particularly in the SMH index, are experiencing significant growth and hitting record highs. The strong performance of semis is seen as a positive economic indicator, as the sector is closely tied to the movement of data and information. The significant year-to-date gains and high number of semiconductor stocks at 52-week highs indicate a thriving sector.
Financials poised for growth
The rest of the market, including the RSP, Dow, and Russell 2000, is expected to catch up to the performance of the S&P 500. The equal weighted index, represented by RSP, is already showing signs of a breakout. Additionally, a breakout in regional banks could further boost the Russell 2000 and contribute to a broader market rally.
Tesla's bearish outlook
Analyst Tony Sakanagi from Bernstein offers a bearish outlook on Tesla, predicting flat earnings growth in 2022 and the potential for increased discounting. With saturation in the luxury and EV markets, Sakanagi believes Tesla may struggle to maintain its premium position and faces challenges in the coming years.
On this episode of TCAF Tuesday, Josh Brown is joined by Logan Mohtashami to discuss the housing market. Then, Josh joins Michael Batnick for an all-new episode of What Are Your Thoughts! Topics include: tech spending, 2024 recession odds, shorting Tesla, financials breaking out, and much more!
Thanks to YCharts for sponsoring this episode! Secure a copy of "The Top 23 Charts of 2023" deck and remember, get 20% off your initial YCharts Professional subscription when you start your free YCharts trial and tell them WAYT sent you (new customers only): https://go.ycharts.com/the-top-23-charts-of-2023?utm_source=WAYT
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