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By J.C. Parets & All Star Charts
Friday, 25th November, 2022
1/ Record Run for UK Stocks
2/ Big Gains Follow Volatility
3/ The GBP/USD Recovers
4/ Bitcoin’s Bearish Streak
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/ Record Run for UK Stocks
The iShares MSCI United Kingdom ETF (EWU) just closed the week higher by 2.87%, capping off its sixth consecutive week of gains. You have to go all the way back to January 2018 to find a streak longer than the current one.
U.K. equities are not only trending well on an absolute basis, but they have been steadily outperforming stocks in other parts of the world since their lows from almost two months ago. This is illustrated by the relative trend between EWU and the S&P 500 in the lower pane. While there is still some work to do, the trend is slowly shifting in favor of the U.K.
On an absolute basis, the next big test is the August highs. This potential resistance zone coincides with a shelf of former lows from last year, making it all the more important. It would be healthy to see some sideways action and a digestion of gains at this polarity level over the near term. However, this could be the line in the sand over the coming weeks and months. If bulls can reclaim the summer highs, it would be a very bullish development for international equity markets in general.
2/ Big Gains Follow Volatility
2022 has been one of the more volatile years in recent history. The chart below portrays the tumultuous environment by counting the number of sessions with moves of +/- 1% or more. We’re already at 111, and we still have over a month to go.
This year has already exceeded the volatility brought on by the pandemic crash back in 2020 and is steadily approaching 2008 and 2009 levels.
This data doesn’t tell us anything about how or when the market will finally bottom, or whether it already happened. What it does tell us is that the price action and volatility we’ve experienced this year is characteristic of major market bottoms. Years with high readings in this volatility indicator tend to coincide with significant market lows.
3/ The GBP/USD Recovers
After retesting its all-time lows in September, the British pound has recovered above a critical former support level. In the process, it’s also retraced almost 50% of the decline from its 2021 peak.
While the GBP/USD is certainly messy back within its prior range, it’s constructive for the pound and our bearish USD stance.
Regardless of whether you take a bullish position in the pound, risks could be to the upside as long as it’s above that crucial shelf of former lows.
Suppose the pound does catch higher. In that scenario, the U.S. dollar could continue to sell off while risk assets catch a tailwind. For now, the pound and other currencies are bouncing back as global equities dig in and catch higher.
4/ Bitcoin’s Bearish Streak
Despite burgeoning strength from stock markets around the world, the trend for cryptocurrencies remains bearish.
This is illustrated by the chart below which shows that Bitcoin is in the midst of its second-longest streak below its 200-day moving average in history.
We use long-term moving averages to help identify the primary trend. That is, if the price is above the moving average, it indicates an uptrend. And if it is below it, the asset is in a downtrend. For Bitcoin, the trend has been lower for about five consecutive quarters now.
Bulls want to see BTC dig in here and move back toward its 200-day moving average. However, that could take some time as the long-term mean hovers more than 30% above near $22,000.
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Originally posted 25th November 2022
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