By J.C. Parets & All Star Charts
1/ Near-Term Breadth Improves
2/ Structural Downtrends Persist
3/ Dr. Copper Diverges
4/ Sugar Craves Out a Potential Top
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1/ Near-Term Breadth Improves
When we look beneath the surface for signs of market health, we notice a slight improvement in internals.
As you can see below, the percentage of new 21-day highs for the S&P 500, S&P 600, and S&P 400 have increased significantly in recent weeks, hitting their highest levels since the summer.
This type of breadth improvement is constructive for stocks and an early sign that the market could be making a durable bottom.
Although bulls still have work to do, we’re looking for a thrust in 63-day highs in the near future. This could be the best confirmation of the shorter-term readings that have taken place in the last few weeks. After all, we need new short-term highs before we can get new long-term highs. For now, things may be headed in the right direction.
2/ Structural Downtrends Persist
Despite burgeoning strength in the U.S., the outlook for global markets remains bleak.
Interestingly, emerging markets—shown by the orange line—are faring better than their developed market counterparts—shown by the blue line, as the chart below highlights.
The outperformance from emerging market economies makes sense given the rising rate environment.
It’s no wonder cyclical value sectors such as industrials, energy, and materials have been the strongest sectors in recent months. These are the types of stocks and companies most prevalent in emerging markets.
3/ Dr. Copper Diverges
As global markets fall under increased selling pressure, a key economic bellwether—copper—has diverged. Instead of making fresh lows along with the Global Dow, copper put in a higher low as it coils above its prior-cycle highs.
This is a noteworthy development, given copper’s tight correlation with global equities and its role as a leading indicator for the global economy.
If copper can find support at its former 2018 highs and catch higher, this could bode well for international equities and risk assets in general. On the other hand, more pain could lie ahead for stocks and commodities if copper breaks down from its current consolidation.
Stock market bulls worldwide would want to see copper dig in and find a floor.
4/ Sugar Craves Out a Potential Top
The March 2023 sugar futures contract is forming a classic head and shoulders topping pattern. It appears that last month’s breakdown was simply a false start.
Earlier in the month, buyers pushed price back toward the high of the left shoulder, adding a degree of symmetry to the pattern.
It’s constructive to see a topping pattern have balance, suggesting strong hands continue to distribute their shares, or in this case, contracts.
Also, it’s best to see an abbreviated right shoulder when it comes to these formations, as the shorter the duration, the stronger the selling pressure.
The last thing sugar bears would want to see is price action chopping around the neckline, failing to break down.
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Originally posted 31st October, 2022
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