Chart Advisor: Follow-Through Friday – Stocks confirm the historic momentum thrusts from yesterday with another broad-based rally to close out the week.

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Friday, 11th November, 2022

1/ ARKK Hooks Higher

2/ Dollar Gets Pounded

3/ Financials Power Forward

4/ As the World Turns

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1/ ARKK Hooks Higher

The big theme today is follow-through. Despite a historic rally yesterday, we never want to give too much weight to just a single day of price action. 

Today, stocks posted another broad rally, bolstering our conviction about the momentum thrusts from yesterday.  Here’s a look at the poster child of the recent bear market, the ARK Innovation ETF (ARKK):

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Source: All Star Charts, with data provided by Optuma

ARKK has rallied roughly 25% since yesterday morning. This historic momentum thrust is illustrated by the two-day rate of change in the lower panel. The fund has never experienced a short-term rally that even comes close to the performance it has put up during the last two sessions.

We’re seeing similar rallies in a long list of equity indexes and funds this week. However, two characteristics make the ARKK chart stand out from the rest. Not only is there a bullish momentum divergence in place, but price is hooking higher from a key support level at its prior cycle lows. It looks like the squeeze is on for these speculative growth stocks.

2/ Dollar Gets Pounded

The U.S. Dollar Index (DXY) is falling fast. When we look at individual currencies, this dollar weakness is most pronounced against the pound.

Yesterday, the GBP/USD currency pair had its best day since 1993, gaining more than 3%. A single-day return of that magnitude is rare, as it has occurred only a handful of times in the past 40 years.

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Source: All Star Charts, with data provided by Optuma

The power of yesterday’s momentum thrust often marks significant bottoms for the pound. This is another piece of evidence against King Dollar and another momentum thrust favoring risk assets.

Evidence continues to suggest the market is in the midst of a significant turning point. And it’s hard to imagine a more bullish catalyst than a falling dollar.#

3/ Financials Power Forward

On Monday, we pointed out that the relative trends in the financial sector were indicating continued leadership from these stocks for the foreseeable future.

Today, European financials (EUFN) are resolving ahead of their U.S. peers as EUFN is breaking out above its August highs. While U.S. financials (XLF) are also trending well, they have yet to make a higher high. 

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Source: All Star Charts, with data provided by Optuma

As the charts look similar, XLF could likely follow the same path as EUFN. If and when it does, it would be a major development for the bulls. 

4/ As the World Turns

It has been one of the worst years in history for international equities. Not only have stocks around the globe been falling on an absolute basis, but they have been serial underperformers when benchmarked against U.S. equities.

The chart below shows the relationship between developed markets outside of North America (EAFE) and the S&P 500:

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Source: All Star Charts, with data provided by Optuma

The chart above shows the relative trend between these indexes in the top pane, the direction of the trend in the middle pane, and the persistence or duration of the current trend in the bottom pane.

At 253 weeks, this is one of the longest streaks in history of consistent outperformance from the U.S. However, with some major improvements in international equities in recent weeks, we are on high alert for a reversal in the relative trend that would favor ex-U.S. stocks. With the dollar rolling over, it could make sense to see the U.S. finally forfeit its long-term leadership role.

Originally posted 11th November, 2022

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