[Altos Weekly Newsletter] Market Hits a Key Indicator, But Can the Rally Last?

Free Weekly Newsletter US Stock Market Hits a Key Indicator, But Can the Rally Last? The US stock market is doing precisely what investors expected it to do to begin the new year. The stock market concluded the first month of 2023 with substantial gains, despite widespread concern that the economy was on the verge of a recession. The stock market achieved the “January Indicator Trifecta” which indicates that all three seasonal indicators — the Santa Claus rally, the First Five Days Early Warning System, and the January Barometer — posted advances in the S&P 500, after the close on Tuesday. Yale Hirsch noted three seasonal indications in his Stock Trader’s Almanac in 1972: the Santa Claus rally, the First Five Days Early Warning System, and the January Barometer. In January, they form a trifecta of seasonal indications that can forecast the market’s trajectory for the remainder of the year. According to reports, the S&P 500 gained 0.8% during the most recent Santa rally, which included the final five trading days of December and the first two of January. The index was also higher in the first five trading days of the month, implying that the bullish trend will continue for the rest of 2023. According to the “January Barometer,” or “as goes January, so goes the year,” if the S&P 500 increases between January 1 and January 31, it may predict favorable returns for the next 11 months. (Article continues below) Quantum Indicator Reveals 5 Tickers to Watch [Demo] Former hedge fund manager, partner to top white house economists, ivy league professors, and the youngest turtle trader unveils the Quantum Indicator! BONUS: 5 stocks to watch! [>> Uncover the 5 tickers today!]( According to Dow Jones Market Data, the large-cap index has gained 6.2% this year, making it the best January since 2019. “The trifecta achieved this month has historically resulted in some very significant returns,” noted LPL Financial’s Adam Turnquist, chief technical strategist, and Jeffrey Buchbinder, chief equities strategist, in a Monday note. “The S&P 500 has added 12.3% on average, to a 4.6% January gain, between February and December, increasing the average gain for these years to more than 17%.” Furthermore, the bullish trifecta is much greater when compared to the prior year, according to the Stock Trader’s Almanac. The S&P 500 ended a particularly unpleasant 2022 for Wall Street with a 20% drop, its worst annual performance since the 2008 financial crisis. As a result, a full-month January rise is all that is required to complete the even more bullish trifecta. Analysts have questioned if the first month of the year will set the tone for how Wall Street will perform throughout 2023, given the Federal Reserve’s determination to raise interest rates further and the risk of an economic downturn. The S&P 500’s 20% drop in 2022 suggests that the January bounce will not return the market to its January 3 high. Even while the seasonality message is obvious, the market still requires triggers to move higher. “[We] expect the Fed’s monetary policy tightening will be a key driver for stocks this year,” Turnquist and Buchbinder said. Fed expected to lessen the pace of rate increase The Federal Reserve is expected to raise its benchmark interest rate by a quarter-point at the end of a two-day meeting on Wednesday. According to the CME FedWatch Tool, traders expect one more quarter-point hike in March, followed by a pause and one or two cuts before the end of the year. However, as of December, all Fed policymakers expected no rate decreases until 2024. “The Fed was quiet last week, which allowed the bulls to have a terrific week. However, interest rates will be raised by 25 basis points this week, and stock performance will be determined by how strongly Powell pushes back on stock market easing,” said Rhys Williams, chief strategist at Spouting Rock Asset Management. “If he pushes back hard on this January rise and sticks to the idea that the Fed isn’t close to being done, the low growth soft-landing camp will drift back into recession, and the large January rebound will give back some of its gains.” US equities finished higher on Tuesday, capping off a good January. According to Dow Jones Market Data, the Dow Jones Industrial Average gained 2.8% for the month, while the Nasdaq Composite gained 10.7%, it’s highest January performance since it gained 12.2% in 2001. Check out these buy-rated cheap stocks Investors can seek advice from Wall Street experts in identifying stocks in a certain range, and recently, analysts have been very active, selecting cheap stocks that are undervalued and poised for significant gains. Once in a while, every market expert will advise you against trying to “time” the market, and it’s true, timing is still crucial for success. Investors must invest in falling prices, and in order to do so, they must be aware of the low points in the market. This doesn’t always mean low in absolute terms, but rather low in comparison to a stock’s most recent historical performance. Today, we looked for two such cheap stocks that have each lost more than 50% of their value in the past year but also have strong upside potential and a Buy recommendation from Wall Street analysts. Here are some examples. Company CS Disco (LAW) We’ll start with CS Disco, a software provider that puts data analytics, cloud computing, and artificial intelligence (AI) at the service of the legal industry. Solutions for handling legal requests, enhancing the discovery procedure, evaluating documents, and developing cases are just a few of the services offered by CS Disco. The company offers a scalable system tailored for legal concerns, to law firms, corporations, and educational institutions. (Article continues below) Quantum Indicator Pinpoints 5 Tickers [Video] "It's Part Indicator... Part Algorithm... Part Trading System." Will YOU Apply It To Your Platform Today? [>> See the stocks today!]( Although there is always a demand for legal services in our highly litigious society, LAW shares have struggled over the past year, falling by almost 76%. The company’s shares have fallen as quarterly losses have been more severe. Last summer, management reduced full-year revenue expectations for 2022 by 11% at the midline and forecasted a larger-than-expected annual net loss for ’22. David Hynes, a 5-star analyst at Canaccord, acknowledges the company’s challenges and states, “With Disco, we’ve reached the point where the stock is simply too cheap for the potential of this business. This is a stock that has gone from the next ‘giant’ to a ‘problem child’ in just 18 months. However, a lot of it seems to us to be the growing pains of a still-small business. Some of this has been self-inflicted, specifically that the model and team don’t provide enough forward-looking indicators to hang your hat on.” “Whatever the reason, we believe it’s time to be more positive about the stock given that LAW shares are selling at about 1.0x EV/R on C2023E. Improved growth should lead to renewed trust, and if that’s the case, there’s nothing to suggest this stock shouldn’t be at least a 3–4x EV/R stock, pricing LAW at $11–13 based on current 2023 forecasts,” Hynes continued. Therefore, it shouldn’t come as a surprise that Hynes ranks LAW as a Buy. Not to add that his $12 price target places a 55% upside possibility. The shares are currently trading for $7.75, and their $11.56 average price objective suggests a possible increase of 49% over the following 12 months. The Turtle Beach Company (HEAR) The company Turtle Beach, which produces gaming equipment, is next. Although computer game software developers frequently make the news, the games wouldn’t exist without the hardware that corporations like Turtle Beach design and produce, including headsets, controllers, simulation systems, microphones, and other acoustic equipment. Since its founding in the 1970s, Turtle Beach has become renowned for its headphones and console gaming sounds. However, over the past year, shares of Turtle Beach have become one of the cheap stocks, decreasing by 53%. The company’s earnings and profitability rapidly declined at the end of 2021 and into 2022, changing from quarterly net gains to losses, and the share price started to plummet as a result. By the middle of the summer, it was obvious that demand, which had risen during the epidemic era when lockdowns kept people at home and made home-based entertainment alternatives like computer gaming more popular, was down and not rebounding, or at least, not rising any time soon. Turtle Beach looked into the likelihood of a buyout in 2022 in addition to the challenges facing the gaming industry, but by late summer those plans had failed. When the corporate board officially decided not to sell, at least for the time being, in August, shares became a cheap stock, being down by about 30%. all at once. For Roth Capital, analyst Sean McGowan writes on Turtle Beach and claims that “headwinds are likely to lessen” moving forward. He provides the following information to support his claim: “Aside from the general market selloff, we think there are two main reasons for HEAR’s decline: 1) Surprising weakness in the video game sector, which results in sales shortfalls and compression of stock prices across the board; and 2) An expensive proxy fight and futile sale attempt prompted by an activist investor. Over the following 12 to 18 months, we anticipate both of these variables to diminish, causing HEAR to rise to at least $18.” The company has a Buy rating from McGowan, and his price target of $18 indicates a gain of around 97% over the next year. In general, Wall Street analysts seem to have a more optimistic outlook on HEAR shares than do investors; the stock has received 5 recent analyst reports, with a 4 to 1 ratio recommending buys over holds for a consensus rating of “Strong Buy.” The average price objective of $11.70 indicates a 28% rise from the current share price of $9.14. Disclaimer: The Altos Trading Alert Newsletter is published as an information service for subscribers, and it includes opinions as to buying, selling and holding various stocks and other securities. However, the publishers of the Altos Trading Alert Newsletter are not brokers or investment advisers, and do not provide investment advice or recommendations directed to any particular subscriber or in view of the particular circumstances of any particular person. Altos Trading, including its owner, does not participate in any trades issued through the alert services. 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