By J.C. Parets & All Star Charts
Tuesday, 7th February, 2023
1/ Tech Gets on Track
2/ Amazon Tests Key Level
3/ The Breadth of Momentum
4/ Natural Gas Searches for a Floor
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1/ Tech Gets on Track
The latest leg higher for the major averages has been fueled by outperformance from mega-cap growth and tech stocks. Due to the heavy weightings of these stocks, major indexes have made solid progress.
Another chart that has made notable improvements over the past month is the relative trend for large-cap technology.
Here’s the Large Cap Technology Sector SPDR (XLK) making new multi-month highs relative to the S&P 500 (SPY).
The rally of the past few weeks has sent tech stocks to their highest level in nearly six months relative to the broader market. The ratio has reclaimed its 200-day moving average, while momentum has achieved its highest reading in over a year to confirm the new highs.
While the primary trend for tech stocks is still sideways on both absolute and relative terms, we’re keeping an eye on this group as it is showing new signs of strength.
2/ Amazon Tests Key Level
Markets continue to look resilient as bulls take control across the board.
Last week, Amazon (AMZN) reclaimed a key level of former resistance-turned-support.
This polarity level represents the prior-cycle highs from 2018 and the summer lows of last year, making it a significant level of interest.
If AMZN is above this critical level around 100, the path of least resistance could be higher for the largest consumer discretionary stock in the world.
3/ The Breadth of Momentum
The stock market continues to move higher as we see an expansion in participation at the individual stock level.
Last week, the Russell 3000 (IWV) saw more new 52-week highs than at any other time over the trailing year.
Another way to measure market internals is by assessing the percentage of stocks that are overbought and oversold. When we look at how many stocks are seeing bullish momentum readings, we are analyzing the breadth of momentum for the broader market.
The chart above shows the highest reading of stocks hitting overbought conditions since the spring of 2020 for the NYSE Composite Index.
These bullish breadth thrusts mean buyers are becoming increasingly aggressive as prices advance. They are characteristics of uptrends and tend to occur at the early stages of new bull markets.
4/ Natural Gas Searches for a Floor
Natural gas futures have been in a free fall over the trailing month. It’s not surprising that the United States Natural Gas Fund ETF (UNG) recently registered its largest negative 21-day rate of change since its inception.
One thing we know for certain is that price does not move in a straight line.
Swift moves, such as the one in natural gas, tend to revert to the mean, often surging in the opposite direction of the preceding move.
When we consider that UNG is finding support at its former 2021 lows, a bounce at current levels seems probable.
Commodity and energy bulls alike would like to see buyers step in at this logical level. It would bode well for raw materials in general to witness upside participation expand. It would also be a positive development for the energy sector if natural gas simply stopped going down.
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Originally posted on 7th February, 2023
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