Chart Advisor: The BOJ Raises the Roof – The BOJ pivots and the yen reels as shockwaves reverberate across markets.

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

1/ 1, 2, 3… Break!

2/ Discretionary Takes a Dive

3/ Getting Low With Pot Stocks

4/ The Bull Flag in Deutsche Bank

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/ 1, 2, 3… Break!

Today, the Bank of Japan (BOJ) raised the ceiling on the country’s benchmark 10-year yield from 25 basis points (bps) to 50 bps. The forex (FX) market reacted with swift directional moves favoring the yen, triggering momentum thrusts across multiple timeframes.

Today’s price action from the yen raises questions regarding some of the strongest-trending markets this year, particularly the U.S. Dollar Index (DXY) and the 10-year U.S. Treasury yield (TNX).

Source: All Star Charts, with data provided by Optuma

Now that USD/JPY and DXY have decisively resolved lower after violating their respective trendlines, will the 10-year yield soon follow?

So far, U.S. yields across the yield curve continue to rise, and the same is true for developed European yields. Regardless of whether TNX rolls over in the coming days and weeks, two of the most significant trends of 2022 appear to be reversing.

2/ Discretionary Takes a Dive

The large-cap Consumer Discretionary SPDR (XLY) broke below its pre-pandemic highs around $132 today. This level has already been tested several times this year, so it’s not surprising to finally see it give way

Two of the sector’s largest component stocks, Amazon (AMZN) and Tesla (TSLA), have been weighing it down recently, as both stocks have also sunk to multi-year lows.

Source: All Star Charts, with data provided by Optuma

The recent price action in XLY provides a great illustration of how the weakest stocks are performing. We’re seeing many bearish consolidations in growth indexes resolving lower over the past few days, with several others on the brink of doing so.

It’s also concerning to see this sector break down on both an absolute and relative basis from a risk-appetite perspective. During bull markets, discretionary stocks tend to outperform, while the opposite is true during bear markets. That’s what is taking place currently, as XLY is also making new lows relative to the S&P 500.

3/ Getting Low With Pot Stocks

Cannabis stocks have been laggards during the current bear market, as they have been in a relentless primary downtrend for some time.

The Alternative Harvest ETF (MJ) is making new all-time lows today after failing to hold its September lows. This is what true laggards do, leading directional moves to the downside just as leaders lead price advances.

Source: All Star Charts, with data provided by Optuma

Momentum has remained in a bearish regime as it has not been able to reach overbought conditions since early 2021.

For now, this continues to be an area of extreme relative weakness. As long as these new lows hold, we could witness a fresh leg lower for MJ.

4/ The Bull Flag in Deutsche Bank

While the weakest stocks of the current cycle are making new lows, one of the weakest stocks over the past 15 years—Germany’s notorious Deutsche Bank (DB)—is actually breaking out to new highs.

After carving out a formidable rounding bottom reversal for the better part of this year, DB just resolved higher from a tight bull flag and reclaimed the 38% Fibonacci retracement level.

Source: All Star Charts, with data provided by Optuma

We’re looking for an overbought momentum reading to confirm these new highs in the coming days. If we get it, the breakout could stick, and we could expect another leg higher toward the 62% retracement level. Seeing one of Europe’s main pro-cyclical bellwethers enter a new primary uptrend can only be viewed as a positive for international equity markets.

Originally posted 20th December 2022

Disclosure: Investopedia 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.