By J.C. Parets & All Star Charts
Thursday, 15th December, 2022
1/ Laggards Flirt With Former Lows
2/ Bonds Are Breaking Out
3/ Relative Strength From Silver
4/ Dollar Digs In
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1/ Laggards Flirt With Former Lows
As downside volatility picks up steam, we’re watching the cycle laggards closely for information on just how bad things could get. When it comes to growth stocks, we like to use the Ark Innovation ETF (ARKK), as it provides us with an excellent gauge of how the most speculative growth names are performing.
With the U.S. 10-year yield falling by more than 75 basis points since early November, ARKK hasn’t budged. It’s still sitting on the lower bounds of its range. If these long-duration equities can’t catch a bid with rates falling, they could experience significant downside if and when rates start rising again.
We’re watching the current level around 34 as ARKK has found support here a number of times over the past several years. Price has been holding above this level again this year, since first testing it back in May. However, with sellers continuing to challenge these former lows, it could only be a matter of time until they absorb the demand at this polarity zone and force a downside resolution.
2/ Bonds Are Breaking Out
After the year bonds have had, it’s difficult to get behind a bullish setup in U.S. Treasurys. However, just because bonds have represented downside risk for almost two years doesn’t negate the near-term bullish action.
Check out the chart of the two-year Treasury note futures:
It’s carving out a tradable low similar to the five-year, 10-year, and 30-year futures. An upside resolution in the two-year carries bullish implications for the entire bond market.
First, it confirms the breakouts in longer-duration bonds. Second, the breakout level for the two-year represents a confluence of resistance at the October pivot highs and the year-to-date downtrend line.
Any way you slice it, bonds could receive a boost if the two-year breaks loose.
3/ Relative Strength From Silver
Silver has been one of the best-performing assets during the last month.
When we compare the Silver Miners ETF (SIL) to the CRB Commodity Index, the evidence suggests we’re at a logical level for some mean reversion in the relative trend.
As you can see, this ratio is putting in a major failed breakdown right at a shelf of former lows from 2014 and 2015. If this reversal holds, silver, gold, and precious metals stocks could catch a sustained bid and continue to outperform commodities more broadly for the foreseeable future.
4/ Dollar Digs In
The U.S. dollar is bouncing back today after central banks worldwide send a clear message of continual hikes. Yesterday, the FOMC announced a hike of 50 basis points, and today the Bank of England (BoE) and European Central Bank (ECB) followed suit.
While this information undoubtedly moves markets, we’re more concerned with price. And when it comes to the U.S. Dollar Index (DXY), that price level is 105.15.
If and when DXY reclaims that key level, risks could be to the upside. But for now, it’s messy. Notice DXY has yet to print an oversold reading after exiting a bullish momentum regime.
This indicates a trendless market—no longer bullish, but not quite bearish. As long as this remains the case, we’ll continue to look to individual USD pairs for information regarding the next directional move for King Dollar.
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Originally posted 15th December 2022
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