By J.C. Parets & All Star Charts
Tuesday, 13th December, 2022
1/ A Confluence of Resistance
3/ Will Breakouts Hold For T-Bonds?
4/ Relative Highs for Health Care
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1/ A Confluence of Resistance
The S&P 500 (SPX) closed the day just north of 4,000 for a gain of 0.7%. After gapping higher as investors rejoiced at the latest inflation report, sellers showed up at a logical level of overhead supply around 4,100.
This level not only represents the highs from a few weeks ago, but it also coincides with the AVWAP from all-time highs and the upper bounds of a downward sloping channel that has put a lid on several counter-trend rallies already this year.
As if it’s not enough, the 161.8% Fibonacci extension of the 2020 drawdown and the 200-day moving average also come into play in the same area around 4,100. It may not be a coincidence that price peaked here this morning before retreating steadily lower throughout the day.
For now, the overwhelming amount of price memory and supply is too much for bulls to overcome. As long as the S&P 500 is below this confluence of resistance, near-term risks could be to the downside and bears would remain in control.
2/ Bitcoin Bends Higher
Bitcoin (BTC) has been dead money since the FTX bankruptcy news broke over a month ago. While it certainly hasn’t been trending higher, the real signal may be in the fact that it hasn’t been trending lower.
With sentiment as bad as it has been in years for crypto, sellers couldn’t achieve any material downside follow-through following the volatility in early November.
After price violated such a significant level at the 2017 highs and summer lows, we might expect a strong reaction lower. Instead, BTC went sideways for the past few weeks, never breaking $15,500.
Today, BTC is up about 3% and is challenging this critical former support zone from below.
If buyers manage to reclaim the $18,000-$19,000 area, it would go a long way in repairing any damage to the structural trend. With a bullish momentum divergence and the weekly RSI-14 unable to hit oversold at the recent lows, this move could be coming underway now.
3/ Will Breakouts Hold For T-Bonds?
We’re keeping a close eye on the five-year, 10-year, and 30-year Treasury futures heading into tomorrow’s FOMC announcement.
Charts for all three look almost identical and carry the same implications for rates. As bond prices rise, their associated interest rates fall.
If these charts hold their breakouts from earlier in the month, we’re likely in an environment where rates begin to fall or at least stop rising.
Either present an excellent scenario for stocks worldwide as risk assets benefit from a lack of bond market volatility. And if rates do fall, bonds could be the place to be for the first time this year.
But even if they stay where they are, the simple fact that bonds have stopped collapsing should prove favorable for risk assets.
4/ Relative Highs for Health Care
For the better part of the year, defensive sectors have shown relative strength. This is especially true for mega-cap health care stocks. When these stocks lead, the broader market tends to struggle on absolute terms, and vice versa. The chart below shows this relationship.
The S&P 500 is on top and our custom index of the ten largest health care names charted relative to the S&P 500 is on the bottom.
While the ratio is making new highs, the S&P 500 (black line) is not making new lows. The relationship has decoupled from its traditionally negative correlation for now.
Since the relationship could eventually reassert itself, bulls want to see the relative breakout in our mega-cap health care index fail. This would suggest an increase in investors’ risk appetite and would be supportive of the recent rally for the broader market.
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Originally posted 13th December 2022
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