Al Brooks: Stock Market in 2023

[Music]  thank you  hi everyone I'm Al Brooks and I want to  talk about what I think the stock market  might do in the coming year  last year totally overlapped 2021 and  now 2023 is in the middle of last year's  range so we have three sideways years  and I think the year will end up mostly  sideways  the yearly chart eventually is going to  form a trading range that means a couple  legs down a couple legs up lasting about  a decade is a 40 chance that last year  is the start of that training range  on the monthly chart  bear Trends are rare so even though we  sell them off for a year I think trading  range is more likely so in conclusion  I'm expecting  sideways in 2023 a trading range on the  monthly chart and a third consecutive  sideways bar on the yearly chart  heli chart as I said so far sideways  with the past two years  this is the cash index of the s p and  it's a yearly chart and that means every  bar is one year so this is 2022 and this  is what we have so far in 2023 it's also  a semi-log scale because if I used a  regular scaling all of these bars would  be compressed and you would not be able  to see the patterns that took place  now why are you watching this video  because you're looking for ideas  everybody knows the bed started changing  its policy last year  for the past 10 years the FED would do  things to prevent the market from  falling more than 20 or 30 percent down  and therefore Traders were aggressively  buying all the sell-offs and that's no  longer the case and nobody knows where  the fed put is now it might be 50 or 60  percent down and therefore the risk in  the stock market is greater than what it  has been  we have a lot of confusion lots of  reversals on the daily chart a trend  going down for a long time on the weekly  chart  confusion is a Hallmark of a trading  range so when the Market's under trading  range Traders are confident that the  legs up and down will not continue  forever they're looking for reversals so  they buy low they sell high and they  take quick profits  now it's normal for someone starting out  to feel anxious and upset when the  market is in a trading range and if  you're feeling that way instead of being  upset you should view it as your radar  telling you that the market is probably  in a trading range  if that's the case which it probably is  you have to trade it like it's in a  trading range you buy low you sell high  and you take quick profits don't hold  hoping that the market will continue up  indefinitely  this is the yearly chart again a  semiologic scale s p  on television everybody's talking about  a recession and some say the self will  go all the way down to the pandemic low  all the way down  here others are saying that the October  law will hold and that the bull trend is  resuming and that will go up to a new  height  Traders live in a 40 60 world  you should never be more than 60 percent  confident of anything always assume that  the opposite will happen at least 40  percent of the time so when you see  those guys and gals on television  talking with absolute certainty that the  market is going to do something that is  such baloney you should totally ignore  it remember it's a market there are  always buyers and sellers and there are  always enough institutions willing to  take the opposite side of any trade to  keep the probability of the market going  up or down X percent within a 40 to 60  percent range so what's the chance of it  going up 10 down 10 what's the chance  it'll go up 20 before it goes down 20  the probability is always going to be  between 40 and 60 percent so therefore  never be more than 60 certain of  anything  this is the monthly Dow Jones Industrial  Average chart going back for 100 years  you can see patterns clearly here but  you don't see patterns well here that's  because this is normal scaling not  semi-log scaling when you use normal  scaling you're thinking in terms of  points or dollars made or loss and  you use normal scaling when you're  looking at less than a few years worth  of data or if you're looking at five  minute charts  semi-log scaling means you're thinking  in terms of percentage gains or loss is  the market going to go up 10 is it going  to go down 20 percent  if you have more than five years of data  you should switch to semi-like scaling  because otherwise everything far to the  left you can't see what's happening it's  useless so you shouldn't even bother  looking at it  when the recent price is  two to five times greater than the  lowest price on the chart it's usually  better to switch to a semi-like chart  and that's what I did here this is a  semiolog chart of the dial and you can  now see the patterns that took place 100  years ago this chart began around 1920  or so  and this was the Great Depression  a bear trend is a series of lower highs  and lows a bear Market is a sell-off 20  from the high  and there's never been a bear trend on  the yearly chart even when the market  fell 89 percent in 1929 1932  it was not a bear Trend it was one leg  down and not a trend a series of lower  highs and lower lows so bear Market yes  bear Trend no  the yearly chart has never been in a  bear trend  fundamentals well there's one  fundamental fact and that is that the  wealth of the world is increasing we  keep making more people and we keep  increasing productivity so the total  dollars in the world here  is a far greater number than what it was  back here and that's going to continue  throughout your lifetime as long as we  keep making more people and improving  productivity  the world's wealth is going to continue  to increase  cash index yearly chart each bar is one  year and this is semi large scaling  now there are 64 bars on this chart  46 of them are bull bars and 18 of them  are bear bars and that means 72 percent  of the bars are bull bars  and that's why when you watch TV at the  end of the year and you see experts  talking about what to expect next year  they're always bullish because they know  there's a 72 percent chance that the  market will be up next year  yearly chart  we're going to enter a trading range  within the next few years  over the past three years  the Market's up 100 percent  so from this low to where we are now  it's more than a hundred percent this is  the pandemic low and this is the high  that's over 100 gain remember this is  semi-log chart so that the recent prices  are compressed compared to the earlier  prices  now the stock market has an average gain  of eight percent a year so on this chart  over the past 60 years it's averaged  eight percent a year  now with it up 100 in three years and  after many hundreds of percent over the  past 10 years it's going to have to go  sideways to down for many years to get  back to average it'll have to do this  it'll have to do this  what we don't know is  has the trading range begun was last  year the start of the range I would say  40 chance the trading range has begun  and 60 chance we'll get at least one  more leg up maybe to above 5 000 before  it's clearly in a trading range pretty  range you're looking for at least a  couple legs down a couple legs up here  one two three and here several legs up  and down  bottom of the range will probably be 30  to 50 percent below the top of the range  like here down fifty percent down 58 and  here there were several Corrections of  30 and 40 percent  when the Market's in the typo Channel  and it has three pushes here one and  then a bear bar two and then a bear bar  and three in a bear bar that's a type of  a wedge and the channel is tight like  this I call it a parabolic wedge and  whenever you have any kind of a wedge  there's typically going to be some  profit taking it'll attract profit  taking and that usually results in a  couple legs sideways to down  the minimum needed for two legs sideways  to down is three bars so down and then  sideways were up this year and then next  year sideways are down so we're probably  going to be sideways to down for another  year so this year and next year could be  more we could be in a training range  that could last a decade but at a  minimum I'm expecting  two legs sideways to down so one and  then pause or bounce and then two so I  expect next year to be sideways as well  the high that took place January of last  year came in a very unusual environment  the interest rates were basically zero  and the Fed was providing tremendous  liquidity to the economy  the earnings that we had were enough in  that environment to put the price up  here  corporations were paying virtually no  interest so all of their earnings they  get to keep all of their earnings  price is always directly related to  earnings  with the FED basically printing money  corporations had to spend very little on  interest and that means they get to keep  all of their earnings and price is  always some multiple of earnings and if  earnings are high price is going to be  high  but that's no longer the case because  the feds no longer basically printing  money  therefore corporations are going to have  to start to pay higher interest rates  and that comes from their earnings and  that will reduce their earnings and it  might take several years for earnings to  grow to the point where price  back up here is Justified so that's why  we're probably going to be sideways for  a couple of years and in fact we might  be sideways for a decade  look at this bar  the high of the bar is above the high of  that bar the low of the bar is below the  low of that bar it's an outside down bar  and not only is it an outside down bar  it closed near the low of the bar and  more importantly it closed below the low  of the prior bar so that close is below  that low  and as a sign of aggressive selling  and the bear body was bigger than the  past five bars so a bigger bare body so  more conviction  and it's also the third bar in the past  eight bars so we're starting to get more  selling pressure and most of the bars  are mostly overlapping that combination  increased the chances that the next year  would be down which it was  compare that to  last year again an upside down bar we  went above the 2021 High below the 2022  low but the close is above the low of  last year and the close is well above  the bottom we have a fairly conspicuous  tale and the body is not especially big  compared to these other bodies  that collection of facts means that this  is a weaker reversal than what we had  here and that reduces the chances that  will go much further down this year  so it's an unremarkable outside bar  and that has an increased chance of  mostly sideways and this year already is  a third sideways bar  I have two trend lines drawn here  this one goes back 50 years this one  goes back about 10 or 15 years  the market tends to work its way down to  bull friend lines and I did that in  1987.  although it's not all that evident  1987 did pull back to a trend line this  is I think this is the 87 low there's a  trend line there I don't have it drawn  in and it did that  here as well the 2009 low was at a trend  line if we draw a trend line across  these lows this was at a trend line  the market is going to come down to this  full trend line and to that bull trend  line I don't know if it'll come down to  it this year or go sideways for five or  ten years and then with a line going up  the market reaches it and it probably  will eventually get down to this trend  line as well this is around the  pandemic low but if the market were to  go sideways for a few years this would  be up here in the middle of the pandemic  range twenty five hundred twenty seven  hundred something like that so we may in  fact reach this trend line  and when the market reaches a monthly  trend line and reverses it usually leads  to a pretty good leg up so I've got a  trend line here touched it rallied  strongly  and if I draw a low a trend line using  these two lows we reached it here  reversed up strongly so if we get down  here and get a reversal up it'll  probably go higher for several bars if  we get a reversal here  we'll probably go higher for a lot of  ours 10 or 20 bars like that or like  that and we can get there by going down  or by going sideways  this trend line is around 2700 and  that's within reach we might get there  this year but this 50-year trend line it  might take a decade or more to get there  monthly chart Fair Trends are rare  this is a monthly chart of the s p  there have been many many reversal  attempts but only four bear trends  it's hard to see but a series of lower  highs and lower lows that constitutes  the bear trend  87 crashed the market fell more than 20  percent in one day  without first transitioning into a bear  trend  usually if the market is going to  transition from a bull Trend to a bear  trend it has to First evolve into a  trading range so bull Trend sideways and  then down full Trend sideways then down  bull Trend sideways down bull Trend  sideways down  Voltron we're starting to go sideways  but we'll probably have to go more  sideways before we can get any kind of a  big sell-off  again monthly charge so we may have to  go sideways all year  lots of reversal attempts but they  become bull Flags the bull Trend resumes  so only four bare Trends on the monthly  chart in the past 50 years 60 years and  lots of attempts to get Fair Trends but  they were all brief and we never got a  bare Trend it became a pullback and the  market resumed up  so bear Trends are rare is this the  start of a bear Trend probably not  because spare Trends are rare  here's a close-up of the monthly chart  and look at this rally that took place  from the pandemic low you see  consecutive bullmars here consecutive  bullmar is here closing near their highs  decent sized full bodies and it's  happening repeatedly  if you're a bear in your soul at this  high and sold more higher you lost money  so bears are not making money with limit  orders this is all evidence of a strong  bull trend  now compare that to the bear Trend that  we've had lower high lower high  we've only had one pair of consecutive  decent sized bear bars and we've had  lots of bars that were bad follow  through big tail bull bars  many sideways bars there's no lack of  urgency  limit order Bulls if a bull bought that  low and bought more lower he made money  if he bought that low he made money if  he bought that low he made money so  Bulls are making money in a bear Trend  so all of these factors make this a weak  bear Trend it could always become a  strong bear trend  but so far it's a weak bear trend  now I want to show something else here's  the cash index and here's the e-mini the  Futures Contract  and here's a 50 correction of the move  we had a strong reversal up from just  above a 50 correction on the e-mini  but on the cash Index this is the same  as this  the cash index did fall to just below 50  percent and you can look at that and say  oh that's a Divergence that's a sign of  strength  it could also be a sign of weakness  Traders might look at this and say it  didn't fully reach 50 and therefore it  did not adequately test 50 and it  probably is going to have to come down  and hit 50 percent so just because we  have diversions does not mean that the  Futures Contract is stronger and it's  going to go up it could be that it has  not gone down far enough and Traders  think it has to get below this line  before it can go much higher  uncertain that increases the chances of  a sideways Market  here we had an outside down bar followed  by an outside up bar and then here we  had an outside up bar followed by an  outside down bar so on the monthly chart  we have a lot of reversals taking place  and that generates confusion and as I  said confusion usually leads to a  trading range we also have a micro wedge  three legs up up and then a bear bar up  and then a bear bar up and then our Bear  bar and you'd expect at least a couple  legs down one pull back two in fact  we've had several legs down so we've met  the minimum expectation for the Bears  but now we have a microwave on the  bottom down and up down and up down and  up and Traders are expecting at least a  couple legs sideways two up we have one  pullback and we're forming two we could  get several and it could keep going  higher  but I suspect that this is going to  stall somewhere in the middle and we'll  have another test down  the Bulls want a strong breakout above  the August high and then a new high  but I think there's only a forty percent  chance that we're going to keep going  straight up to a high far above this  High it might go a little bit above it  but I don't think that this is a  resumption of this I think it's a  continuation of this so I think we're  going to Rally that looks like this not  all that strong and I think we'll get  another leg sideways to down  a wedge means three failed attempts to  continue the trend those typically take  profits and expect a couple legs down  for a wedge top and for wedge bottom  Bears take profits and you expect a  couple legs sideways two up  and as a guideline  a correction from a wedge usually lasts  about half as many bars as in the wedge  or as in the rally and we've had about  half as many bars as we had in that  entire rally  10 bars down so we'll probably get at  least five bars sideways to up  this is disappointing to the Bulls and  they might conclude that the first leg  up is going to fail which is what I  think I don't know where it'll fail it  could go above that it could fail on  this bar we could suddenly reverse down  but I do think this is a bull leg and a  trading range and that this is a bare  leg and what will become a trading range  second leg up so I think this rally is a  pullback  from a first leg down and that will get  a second leg down before the Bulls have  a chance of resuming the bull trend  as I said this second leg up could end  this month and just be more sideways and  then go down it could go above this it  could go all the way up here and then go  down but I think whatever rally we get  will end up as a bull leg and what will  become a trading range  after a second leg down  we will not necessarily go up to a new  high we could go sideways here for  several years before we get to a new  high but at a minimum I think we're  going to go up and then get a second leg  down and I do think we're going to go  below the October low I do think we're  going to go below the pre-pandemic high  in other words below 3 300 3200  weekly shot I want to make one point  about the weekly chart  and that is this  we had a trend and it pause on every big  round number 2500 2600 2700 3500. except  here accelerated up above four thousand  there was a gap on the weekly chart  there was a gap on the monthly chart  there was a gap on the daily chart all  around four thousand  so clearly a very important price and  last year I said I thought this year  would come down and close all those gaps  which we did  we've been going sideways here around 4  000 now for nine months again validating  how important this price is  the all-time high is important and now  we have another important price four  thousand  when you have two important prices they  often create a third important price  a measure moved down and here's a  measured move from the all-time high to  four thousand  and it's below the pre-pandemic high and  I think there's better than a 50 50  chance we're going to get there at some  point this year  other targets for the Bears  whether or not we go higher before we go  down the pre-pandemic high many stocks  have already fallen below their prepaid  Dynamic highs that's down 31 percent  from this high  on e-mini we have that 50 pullback  that's a magnet which I think we're  going to get below it and I think we're  going to get below this and I think  there's a 50 chance we're going to get  all the way down to a measured move  from the high to 4 000 down here so I  think there's a 50 chance or more that  we're coming down here  probably this year possibly next year  markets often pull back to the middle of  a triangle and this is a backwards  triangle instead of a Contracting  triangle it's an expanding triangle  but it's still a triangle an area of  agreement that the price is fair and  markets often come back to the middle of  a triangle which is around 2700  I don't know that we'll get that far  down  and markets sometimes come all the way  back to the bottom of a by climax this  is 56 percent below that and right now I  think there's only a 20 chance that  we're coming down here  ever I think only a 20 chance we'll ever  get to this low  obviously if we start to sell off  strongly instead of 20 it becomes 30 40  50 60 but right now there's only a 20  chance that the stock market will ever  get back here again  my conclusion as I said sideways in 2023  I want to summarize what I've been  talking about  old friends eventually evolve into  trading ranges on the monthly chart  we've had several small legs down but  bad follow through on the way down  this is a trend we have lower highs we  have lower lows but it's not nearly as  strong as the bull Trend was here as I  said earlier  this is probably a bare leg and a  trading range the sell-off is deep  enough so that Traders are wondering if  a trading range has begun remember  trading range has at least a couple legs  sideways to down and the legs tend to be  several bars Long a shredding range is  usually at least 10 to 20 bars Long  I refer to this as a trading range  instead of a bull flag because I think  Traders believe the first rally will be  sold and will get at least a small  second leg sideways to down  Bulls who bought anywhere up in here are  disappointed and surprised by how many  bars the sell-off lasted on the monthly  chart and how deep the market retraced  and therefore a lot of these Bulls are  thinking the market is transitioning  into a trading range they don't know if  this is the end or if it'll go down  lower in any case a lot of these bulls  will look to sell if the market gets  back to where they originally bought  they want to try to get out around break  even so you have both selling at the  high not Bulls buying at the high there  are bulls going who are going to be  buying at the high but there will be  many who will be selling and that will  result in a second leg sideways or down  on the yearly chart  2022 is a big bear upside down year it's  a pullback in a bold friend however  because it's a big bear bar closing  below its midpoint and because it's  upside down and it's a third leg up a  parabolic wedge and this has gone on a  long time it's not a very good buy  signal bar normally in a pullback  traders buy Above the high of the  fullback bar  there'll be more sellers than buyers  above last year's high so we probably  will not go up very much in the next  couple years  on the other hand we have about a dozen  bars in a very tightful Channel with  mostly bull bars closing near their  highs  that reduces the chance that we'll get  much of a seller so there'll be buyers  not far below last year's loan so if  Traders are willing to buy down here and  sell up here it increases the chances  that will be sideways this year and I  suspect we'll be sideways next year as  well  40 chance the yearly chart has  transitioned into a trading range like  we had here and like we had here  sixty percent chance will go at least up  for a few more bars before the  transition begins  we have a micro Edge top it's a wedge on  the daily chart put on the monthly chart  it's a micro wedge and it's probably  leading to a minor reversal not much of  a bear Trend as I said bear Trend but  not very strong and it's less strong  than this however it's strong enough so  Traders will expect at least a small  second leg sideways to down  there's better than a 50 chance we're  going to get down to this level  this is based upon the March contract  if we don't get there by March the June  price will be different the key is a  measured move from the all-time high an  important price and 4 000 an important  price so I suspect we'll get down here  which is just below the pre-pandemic  high  I think better than a 50 50 chance we'll  get there  I think the worst case is that the  sell-off will get back down to the  middle of this expanding triangle  what's the chance that we get back down  here  this is almost 60 down from the high I  think it's 56 percent down from the high  at this point I think you know maybe a  20 chance we get there and if we go up  to a new high  maybe the chance of ever getting back  down there will be 10 percent  in other words we may get near it but I  don't think we'll get below it  no sign of a major top  we should evolve into a trading range  lasting five to ten years five to ten  bars maybe more and it should begin  within the next several years  but right now there's a 40 chance that  the trading range has already begun  2022 was a bad Buy Signal bar so sellers  above buyers below probably sideways for  at least 2023 and I suspect mostly  sideways for 2024 as well  three consecutive bear bars are unusual  I think that's the first time we've had  it in 60 years or so so I doubt we'll  have a big big sell-off down to the  pre-pandemic low but as I said we make  it a second down a year and then we may  do something like this over the next  several years I know it's not a  spectacular call in this video everybody  wants to hear all the markets going to  go up big next year or the Market's  going to go down big next year but  that's not the case I think this is  going to be more like this kind of stuff  or this kind of stuff and not like the  majority of the bars on the chart where  the market trend is strongly up  again yearly chart probably mostly  sideways this year and probably next  year as well however I also think the  market will develop into a trading range  with a couple  obvious legs down and off within the  next few years and it probably will last  a decade  monthly chart bear Trends are rare so  even though we've sold off a lot I think  we're going to be sideways for the  remainder of the year and I think  there's better than our 50 50 chance  that we're going to get down to that  measured move based upon the all-time  high and 4 000.  again I'm Al Brooks I hope that you  found this helpful and I hope that you  have a good year