You may have noticed; the stock market is starting to break out right now.
The S&P 500 is up 5.5% year-to-date, marking one of its best starts to a year ever!
Could it be just another bear market rally? Unlikely. This rally looks and feels a lot different – in a good way.
Inflation is finally cooling very quickly. The economy is starting to stabilize for the first time in 12 months. And it’s very likely that the Fed will slow its rate-hiking campaign over the next few months.
All the fundamental factors are starting to shift in favor of a stock market rally.
And the same is true for the technical factors.
The S&P 500 has retaken its 200-day moving average for the first time in this bear market. Plus, the index has also meaningfully broken above its 2022 downtrend resistance line and is forming a solid technical uptrend for the first time, too.
Technically, this looks like a market that is ready to run!
We think that’s exactly what the market is going to do – break out significantly higher over the next 12 months!
As the old saying goes, a rising tide lifts all boats, so most stocks will rally significantly in 2023.
But my edit to that old saying is that in rising tides, some boats rise a lot faster than others.
Said differently, when the market enters a breakout, most stocks tend to rise. But some stocks rise a lot more and a lot faster than others do.
I want to own those stocks – the explosive stocks that will be the market’s biggest winners over the next 12 months.
That’s why, yesterday, I ran a sector-by-sector analysis to see which corners of the market are displaying the best technical signs of strength.
And I found three sectors in particular that look like they are ready to break out in a big way…
Electric Vehicle Stocks Should Charge Up After Tesla’s Earnings
First, we think EV stocks look technically primed for a major breakout here.
Throughout 2022, demand in the EV sector was hampered by rising interest rates pinching consumer purchasing power. And supply was burdened by supply chain disruptions that limited how many cars companies could make.
Both headwinds are now fading.
Financing rates have dropped significantly over the past few months, and they will likely continue to drop throughout the next year as inflation pressures subside. That should help re-stimulate EV demand.
Meanwhile, China is set to fully reopen its economy in 2023. And since more than 50% of all EV parts are made in the country, its reopening will correct a majority of the EV industry’s supply chains. With those supply chains back online, EV makers should be able to make a lot more cars in 2023 than they did in 2022.
And the technicals confirm this.
The Global X Autonomous & Electric Vehicles ETF (DRIV) was stuck in a nasty downtrend throughout 2022. Recently, though, it broke out, formed a double bottom, retook its 200-day moving average, and is now charging sharply higher.
This has all the technical makings of a new breakout.
As such, if you’re looking to charge up your portfolio with some high-flying stocks, we think you should strongly consider electric vehicle stocks.
Software Stocks Are Gearing Up for Takeoff
And it looks like software stocks are about to shoot higher, too.
Software stocks were among the market’s biggest losers in 2022. Rising interest rates put significant downward pressure on their rich valuations. But over the past few months, the pace of interest rate hikes has slowed. As it has, software stocks have regained their footing.
With inflation collapsing, it seems very likely that interest rates will fall throughout 2023. It reasons, then, that software stocks should rebound.
The chart certainly seems to suggest as much.
Software stocks recently broke out of their nasty 2022 downtrend and formed a triple bottom at a critical technical level that dates back to the COVID-19 pandemic. They are now pushing sharply higher in a manner that implies they are ready to take out a critical resistance level. If they do, then it could be up, up, and away for software stocks in 2023.
We think these stocks could be among the market’s biggest winners in 2023. That’s why, if you’re looking to score this year, we think you should strongly consider software stocks.
Housing Stocks Are Primed for a Huge 2023 Recovery
This last sector may come as a surprise, but we firmly believe that housing stocks are due for a massive recovery rally in 2023.
We all know that the housing market got crushed last year. Rising mortgage rates coupled with bloated home prices from the pandemic boom to pop the housing bubble. Throughout most of last year, home demand, sales, and prices dropped, and housing stocks got crushed.
But mortgage rates are now collapsing. As they have, mortgage demand has rebounded with vigor. This has led to a rebound in homebuilder sentiment, existing home sales, new home sales, housing starts, and building permits.
The housing market appears to be in the early innings of a major recovery.
That’s why housing stocks are breaking out right now.
A few months ago, the SPDR Homebuilders ETF (XHB) broke its 2022 downtrend resistance line. Since that time, the ETF has traded sideways and has formed a very bullish double bottom. Then it proceeded to jump above its 200-day moving average and is now making a run to cycle highs.
This looks like a big-time technical breakout.
Accordingly, we think housing stocks will soar in 2023.
The Final Word on Stocks for 2023
The stock market is in breakout mode. It’s time to join the rally.
You could join in by buying any old stock in the market.
But it’d be much more profitable to buy the breakout stocks that are leading this rally.
We believe many of them will be found in the EV sector. And in fact, we have identified what we feel could be the highest-flying EV stock of 2023.
I can virtually guarantee that you’ve never heard of this company before… but it could soon be working with the world’s largest enterprise.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.