The new year opened to a rocky start as the stock market closed the first day with a flurry of selling.

This follows the end of an up-and-down 2022 where Wall Street saw record highs only to close with the worst year in more than a decade.

What lies ahead is unknown, and the team at Simpler Trading is keeping an eye on the bigger trends.

Traders see another year of frantic selling, buying

Traders will need to adapt as the stock market fluctuates from days of frantic selling to, hopefully, sessions of upward gains.

Barring a catastrophic downturn, this year looks to be much the same as the last.

“As we head into the New Year, it’s important that we consider the possibility of a continuation of the move away from high growth technology and into more defensive areas that offer an attractive yield while also being able to maintain growth,” said Mary Ellen McGonagle, Senior Managing Director of Equities at Simpler Trading.

A year of economists and investors focusing on the negative impact of inflation may shift to the hope of moderating inflation and the Federal Reserve (Fed) easing up on hawkish monetary policies.

“There are clear signs of inflation slowing even beyond what we’ve recently seen in food and used car prices,” Mary Ellen said. “Other economists are also eying the recent moderation in inflation and are anticipating the Fed to pause its rate hiking campaign as soon as the first half of 2023.”

Commodities offer new area of trading this year

There is no guarantee that inflation will go lower or the Fed backing off its plans, so traders must be ready to work within how the market reacts to any changes compared to last year.

“Until we see confirmation of this possibility, we’ll continue to favor more defensive areas such as healthcare while also adding commodity related stocks as they turn constructive,” Mary Ellen said.

Simpler’s traders are keeping an eye on gold, silver, and energy sectors within the market.

“These may also continue to move into favor as well,” Mary Ellen said. “This is because we are in a period of rising interest rates amid elevated levels of inflation and this backdrop lacks an accommodative Federal Reserve that has instead tightened policy.”

Traders need to be aware of “defensive” areas of the stock market that help guard against the rapid ups and downs experienced over the last 18 months.

“As we head into the new year, it’s important that we consider the possibility of a continuation of the move away from high growth technology and into more defensive areas that offer an attractive yield while also being able to maintain growth,” Mary Ellen said.

Technology stocks struggled mightily in 2022, and that appears to be the continuing trend for these once darling tickers.

In the market today, the Nasdaq topped losses for the day by closing down by .76% to 10,386.98 points. The S&P 500 followed with a .40% loss, down to 3,824.14. The Dow rallied from down more than 200 points early to recover most of the losses and finish down just .03% at 33,136.37 (dropping 10.88 points on the day).

Negative momentum hits technology stocks

Heavily valued stocks such as Apple, Inc. (AAPL) and Tesla, Inc. (TSLA) opened 2023 with negative momentum.

Apple closed the 2023 opening session down 3.74% to $125.07 while Tesla toppled by 12.24% to $108.10. At the beginning of last year Apple was at $179.70 and Tesla was at $383.20. Apple has lost more than $1 trillion in valuation in 12 months and Tesla stock has dropped 50%.

These two mega cap stocks reveal the weakness overall in the technology sector, and the downtrend in technology stocks is a caution for traders.

“The much higher probability is that the weight of the technical sell signals takes the market lower,” said Sam Shames, Vice President of Options at Simpler Trading. “This will likely be led by mega cap tech stocks. Amazon, Tesla, Google, and Apple all collectively have large air pockets under support and squeezes.”

This could lead to dicey trading conditions.

“There are some straight up crash setups out there with huge open-air pockets under price, a defined bull-trap high with lots of distribution over the past month, multi-day squeezes under price, and HiLo sells on the most important products,” Sam said.