By J.C. Parets & All Star Charts
Monday, 5th December, 2022
1/ A Vigorous Bounce for Bonds
2/ Saudi Arabia Signals Trouble for Energy
3/ Key Levels for Precious Metals
4/ Will Risk Appetite Rebound?
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1/ A Vigorous Bounce for Bonds
Bonds reclaimed critical levels last week, heading into Friday’s close with strength. The long-duration Treasury Bond ETF (TLT) provides an excellent example as it rebounded back above its former 2014 lows.
While today’s price action lacks upside follow-through, the four-week rate of change paints a bullish picture as it posts its largest reading in over a decade, excluding the onset of the COVID-19 pandemic.
Extreme momentum thrusts like this one tend to occur at major turning points, adding to our conviction of a potential failed breakdown in Treasurys.
We’ll continue to monitor TLT for upside follow-through as investors begin to turn to bonds after one of the worst years in recent history for U.S. Treasurys.
2/ Saudi Arabia Signals Trouble for Energy
Many energy-related commodities are holding on to crucial support levels. Stock markets in energy-dependent countries typically serve as leading or coincident indicators for energy futures.
The iShares Saudi Arabia ETF (KSA), which is now breaking down from a head and shoulders pattern, provides a good illustration:
The fact that these stocks are resolving lower from a large topping formation suggests we could see further weakness in the energy space. With many energy contracts such as crude oil and gasoline also looking vulnerable with potential topping patterns, we’re watching closely to see if they could follow the path of KSA.
3/ Key Levels for Precious Metals
Stocks with exposure to gold, silver, and other precious metals have all rebounded recently and reclaimed their 2021 lows.
The PHLX Gold and Silver Index (XAU), shown below, is a cap-weighted index of 30 of the largest gold and silver mining stocks. In the case of XAU, the 2021 lows also coincide with a shelf of prior highs from 2013 and 2016, making this a critical polarity zone.
As long as we’re above the 116 level, the lows could be in for precious metals stocks, and we could anticipate further upside.
However, this chart is still showing a rangebound trading pattern over longer timeframes. That likely won’t change until XAU reclaims its highs from the past several years around 166. Price movement could remain uncertain until then.
4/ Will Risk Appetite Rebound?
Despite the recent stock market rally, the Ark Innovation ETF (ARKK), the benchmark for speculative growth stocks, along with one of our favorite risk appetite barometers, the discretionary vs. staples ratio (XLY/XLP), failed to catch higher.
As you can see, both charts are currently pressing against the lower bounds of their ranges and threatening to break down.
These two charts are unlikely to resolve in opposite directions. It is also unlikely that the broader market continues trending higher if these charts continue resolving lower.
The strong positive correlation between these charts is due to their use as proxies gauging investors’ appetite for risk assets. Bulls would like to see these charts hold their former lows and start making upward progress.
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Originally posted 5th December 2022
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