Chart Advisor: A Messy Start for March

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Wednesday, 1st March, 2023

1/ When in Doubt, Zoom Out

2/ A Favorable Period for Stocks

3/ Steel Looks Constructive

4/ Buyers Step Into Natural Gas

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/ When in Doubt, Zoom Out

Although February was a difficult month for the stock market, it was actually the second consecutive month that the Russell 2000 ETF (IWM) closed above its long-term moving average (MA). The same is true of its AVWAP from the 2020 lows.

The 12-month moving average and the AVWAP coincide at the same level around 185, establishing a critical confluence of interest.

Source: All Star Charts, with data provided by Optuma

The fact that price remains above this zone means buyers are still in control. Even with the recent selling pressure, the progress from earlier this year has not come undone. Major trend reversals like this can take time. Other major averages such as the S&P 500 and the Dow Jones Industrial Average are holding above their respective levels as well.

2/ A Favorable Period for Stocks

With February behind us, we are entering into a favorable time of the calendar year for the stock market.

The average monthly performance of the S&P 500 is shown in the following bar chart:

Source: All Star Charts, with data provided by Optuma

As you can see, both March and April are strong seasonal periods for the equity market. Seasonality is once again a tailwind for stocks. This will remain the case until July.

3/ Steel Looks Constructive

Yields are on the rise and pro-cyclical commodities are responding accordingly.

Base and industrial metals have been resilient, showing signs of strength while most risk assets have fallen under increased selling pressure.

Steel futures provide an excellent example:

Source: All Star Charts, with data provided by Optuma

Steel futures climbed over 30% last month, posting a bullish wide-bodied candle. Yet they still trade more than 45% below their 2021 peak.

These figures reveal the near-term strength and the significant repair needed for this industrial metal.

Considering that steel-related equities continue to trade near multi-year highs, an explosive catch-up trade could be underway.

4/ Buyers Step Into Natural Gas

After withstanding a steep selloff to start the year, the Natural Gas Fund ETF (UNG) has stopped falling.

Let’s unpack where and how buyers supported price. Here is a monthly candlestick chart of UNG:

Source: All Star Charts, with data provided by Optuma

Former support marked by the 2020 and 2021 lows held into the monthly close. It’s a very bullish development to witness demand come in at this logical level of support. And it’s equally impressive how the bulls continue to drive prices higher. 

Notice the long lower shadow on last month’s candle, registering a potential bullish hammer. Buyers stepped in and regained control of the market amid overwhelming selling pressure. 

We would need to witness upside follow through in the coming weeks to confirm the bullish hammer interpretation. Regardless of how this pattern resolves, near-term momentum has shifted in favor of the bulls.

Originally posted 1st March, 2023

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