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
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/ 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):
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.
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.
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:
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
Disclosure: Investopedia
Investopedia.com: 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.
