2023 Rewind: Price Action Reveals Lessons on Wall Street

In the bustling world of Wall Street, investors often find that history doesn't exactly repeat itself, but it does tend to rhyme. As traders scrutinize price and volume trends, they uncover rhythmic patterns that offer essential lessons from the past. Understanding these patterns helps investors navigate the stock market's complexities and make more informed decisions, especially as they relate to recurring human behavior and market reactions.

Technical Insights from 2023

Throughout 2023, important technical lessons emerged, reaffirming the significance of price action. This retrospective is the third in a series that has explored such lessons in the tumultuous realm of investing.

Key Technical Indicators from the Past Year

2023 shone a light on several crucial indicators that every investor should consider:

Breadth Thrusts: A Signal of Strength

Broad market participation is often a strong sign that bulls are driving the market, potentially leading to lasting bull markets. The Zweig Breadth Thrust, for instance, is a technical signal based on NYSE stock advances and their moving average, indicating widespread buying. Historical data since 1945 shows a consistent positive outcome for the S&P 500 Index following such thrusts, with 2023 echoing this trend.

The Significance of the 200-week Moving Average

Rather than a short-term trading tool, the 200-week moving average has proven to be a vital long-term indicator. Stocks touching this threshold, like Microsoft in late 2022 and early 2023, may offer strategic buying opportunities. The same can be said for broader indices like the Nasdaq 100 ETF, which has respected this average post-2008 Financial Crisis.

Understanding Selling Waves

Markets often see three distinct selling waves during bearish phases, with the second wave typically being the most prolonged. Recognizing these patterns can provide insight into market bottoms and potential recovery phases.

Interpreting Price Action Over News

The true utility of market news lies in observing how securities react to it. For example, a stock's rally in the face of negative news may suggest underlying market strength or an approaching bottom, as seen in the market's reaction to inflation reports in 2022 and with specific stocks like Coinbase in 2023.

Geopolitical Events and Market Resilience

Historical trends suggest that, with some notable exceptions, US markets are adept at overcoming geopolitical events, often continuing to rise amidst global tensions. The year 2023 illustrated this resilience as stocks increased despite escalations in global hotspots.

In essence, technical analysis in 2023 has further cemented the dominance of price action as a guiding light on Wall Street, offering a repository of lessons for market participants.

WallStreet, PriceAction, TechnicalAnalysis