Half year recap- Keep investing??

Hello everyone! The first half of the year 2023 is over, and I hope all of you have had a wonderful year thus far in the stock market, career achievements, family, and health!

First, I will share the significant events of the past half-year that stood out to me, along with a chart and my thoughts on the near future, including the sector that I am currently monitoring to aim for big returns.

My opinions may differ from the majority. To me, the bull market is making a comeback not because of "good news," but because we have experienced enough bad news, and it seems like the worst is already behind us.

Let's recap the major events that caused the market to crash into a bear market:

i) Russia-Ukraine war: The war is still ongoing and doesn't seem to be ending anytime soon. Moreover, as the war progresses, more and more farmland is being destroyed. For example, the Kakhovka dam was destroyed, further harming the nearby ecosystem.

ii) Inflation: After the COVID-19 pandemic subsided, the demand for oil increased significantly. As everything tries to recover, the demand far exceeds the supply, leading to higher prices for most commodities. Additionally, the Russia-Ukraine war has also reduced the supply of crops, worsening inflation. Supply chain issues due to the China lockdown have also pushed prices much higher.

iii) Due to inflation, the Fed has been aggressively increasing interest rates and tightening monetary policy. With higher interest rates, money is no longer cheap, and this has affected the flow of money into stocks. People reduce their spending and prefer to put their money in banks to earn higher interest rates. As a result, company revenues are affected, leading to poorer earnings, which in turn cause companies to lower their guidance, further decreasing stock prices. Hopefully, we all still remember the stories of PayPal and SNAP.

In 2023, have the above issues been resolved? Not at all. The war is still ongoing. Although the Consumer Price Index (CPI) is starting to decline, it is still at a high level compared to the pre-COVID period. And I am confident that most of us still find most items to be expensive today. As for the Fed, just a few days ago, Powell mentioned that more restrictions are coming! I am quite certain that most of us still remember the five-day period in March 2023 when three small- to mid-sized U.S. banks failed, triggering a sharp decline in global bank stock prices. This is one of the direct impacts of tightening monetary policy.

Then, why does the stock market keep going up?

To me, it is simply because the conditions can't worsen. The uncertainties have been greatly reduced, and as a result, investors are starting to put money back into the market. For instance, even during the worst periods, big companies like Apple and Microsoft were still making money. While some companies, such as Amazon, may have reduced their guidance, overall, when the worst is over, good times are ahead.

Chart analysis:

Let us analyse on the chart to roughly get an idea how far we can go from here:

Oil

In July 2022, when the oil first crossed below the MA30 moving average (weekly chart) for the first time after a clear double top, I informed my subscribers that the oil price would begin to decline. Consequently, the inflation caused by the spike in crude oil prices would start to stabilize.

Currently, the chart appears to be stabilizing, and crude oil is entering stage 1, with a higher probability of further downward movement since the MA30 is still acting as a strong resistance. As long as the price remains below the MA30 and the MA30 continues to slope downward, the inflation caused by the crude oil price will not pose a threat.

Index
I will analyse the key indices S&P500 and Nasdaq composite index. S&P 500

The S&P 500 is entering the early stage 2, characterized by the MA30 sloping upward, forming higher highs and higher lows, and beginning to break through previous strong resistance levels. These indicators suggest the onset of a new bullish market. However, it is important to note that not all sectors are performing equally.

For example, over the past half year, the technology, communication services, and consumer cyclical sectors have emerged as the leading sectors. It is worth noting that many communication services companies, such as Google, are also categorized under the technology sector. Therefore, it can be observed that the current market's upward movement is primarily driven by the technology sector.

This can be clearly observed from the Nasdaq Composite Index.

Currently, the index is consolidating after breaking up from the resistance level around 13,200, accompanied by a significant surge in volume. The MA30 is displaying a sharp upward slope, indicating strong bullish momentum. The current consolidation phase is characterized by lower volume, which suggests a potential continuation of the upward trend. Based on these observations, I anticipate that the Nasdaq Composite Index will break above 14,500 by the end of this year.

Next companies:

My opinion on the individual stocks remains the same, as you can refer to my previous posts. Currently, my biggest gains are from Apple, Microsoft, and Nvidia. In general, based on the charts, we can anticipate more large-cap stocks to reach new all-time highs.

From the half-year recap, it becomes evident that not all sectors or stocks can provide substantial returns. If we hold stocks in underperforming sectors, our gains will be limited. It is important to keep in mind that while the bullish market is still in its early stages, the future progress may not be driven by the same sector.

For example, during the initial stages of a rate hike, the bank and finance sector typically performs well. However, in the current high-interest environment, even though money is no longer cheap, large-cap technology companies with strong market dominance or a competitive advantage can offset this by increasing their prices. Most companies rely on Microsoft products, and if Microsoft were to raise their software prices by 5%, it is unlikely that companies would switch to alternative products due to the high switching costs involved. Additionally, big-cap technology companies also benefit from the low-cost borrowing environment when interest rates begin to decline. Therefore, investing in big-cap companies appears to be a favourable choice at this moment.

From the sector rotation chart, next we shall look on Technology, industrial and basic materials. I am not going to talk about industrial and basic materials now, however, there is another sub-sector of technology that I am aiming now: growth stock.

Take a look at the ARKK ETF; it is currently in stage 1 consolidation. I believe that once the interest rates start to decline, growth stocks will advance again. Compared to the industry and basic materials, growth stocks definitely have a higher probability of yielding higher returns.

In summary, the bull market is still young, making this an opportune time to invest. If we miss out on this bull market, we may have to wait another 5-8 years. Keep investing!