By J.C. Parets & All Star Charts
Monday, 6th February, 2023
1/ Dollar Digs In
2/ Will Copper Find Support?
3/ Looking for Leadership
4/ Chinese Internet Stocks Lack Momentum
Investopedia is partnering with All Star Charts on this newsletter, which both sells its research to investors, and may trade or hold positions in securities mentioned herein. The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice.
1/ Dollar Digs In
The U.S. dollar is back on the rise. After falling for four straight months, the U.S. Dollar Index (DXY) is up three days in a row.
Whether the near-term dollar strength turns into a more sustained trend is anyone’s guess, but as long as it trades above last year’s June pivot lows, we may have to give the dollar the benefit of the doubt.
Notice how this key level just above 100 also coincides with the 2020 highs. A bout of USD strength off this support zone would make sense, especially considering the dollar has fallen more than 10% since late September. It also never hit oversold conditions on the 14-day RSI during such a steep decline.
Regardless, a near-term DXY bounce could produce stiff headwinds for global risk assets in the coming days and weeks.
2/ Will Copper Find Support?
Dr.Copper provides an excellent example of the tactical corrections underway in many risk assets. It’s no coincidence copper futures are down four straight days in a row as the U.S. dollar rebounds.
As copper corrects, our attention turns to potential levels of support.
For copper futures, it’s the 3.94 level marked by a shelf of former lows and the pivot highs from last fall. This polarity zone represents a logical level of potential support.
But if buyers fail to step in and provide a bid at this key level, copper and global risk assets in general could experience a deeper correction through price.
3/ Looking for Leadership
Although international equities have been steadily outperforming their U.S. counterparts for the last three months, we have yet to get a decisive breakout in the relative trend between developed ex-U.S.
stocks and stocks in the U.S. As you can see, the MSCI EAFE ETF (EFA) vs. S&P 500 (SPY) ratio just failed to break out from a rounding bottom reversal formation.
As long as this ratio remains stuck in this range, it tells us international stocks will likely need more time before moving into a sustained leadership role relative to the U.S.
More rangebound action could be likely over the intermediate term. However, this base could eventually resolve higher, which would mean international equities could be outperforming over longer timeframes.
4/ Chinese Internet Stocks Lack Momentum
Chinese equities have enjoyed a solid rally since they bottomed in October last year. However, recent price action indicates it might be time for this group to take a breather.
As you can see, the China Internet ETF (KWEB) has been struggling to take out the upper bounds of a reversal pattern all year.
Not only were buyers unable to force a breakout from this base, but momentum (as measured by the 14-period RSI) couldn’t achieve a single overbought reading during the rally of the past few months.
It looks like Chinese stocks will require more basing before a sustained uptrend can take form. This would be normal behavior as bottoms are processes, and Chinese equities have earned a period of digestion after such a strong run off the October lows.
—
Originally posted on 6th February, 2023
Disclosure: Investopedia
Investopedia.com: The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Investopedia and is being posted with its permission. The views expressed in this material are solely those of the author and/or Investopedia and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: ETFs
Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: Forex
There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.
Disclosure: Futures Trading
Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.
