By J.C. Parets & All Star Charts
Wednesday, 28th June, 2023
1/ Big Milestone for Mid-Cap Industrials
2/ Constructing New Highs
3/ Crude Oil Challenges Support
4/ Will Emerging Markets Follow CEW?
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1/ Big Milestone for Mid-Cap Industrials
The S&P 400 Industrial Index is officially the first sector index to achieve new all-time highs during the current cycle. Yesterday, the mid-cap index ripped through its late 2021 highs just north of 1,700. Here’s a look at the weekly chart:
While tech and growth stocks have been the best performers since last year’s lows, industrials experienced a much shallower drawdown in 2022, so less work was required to get back to the old highs.
When we look at the small and large-cap industrial sector indexes, they are pressing up against their former highs in similar patterns to the one shown above. We would expect all these indexes to resolve in the same direction. For now, mid caps are suggesting that they could be higher.
2/ Constructing New Highs
While home construction stocks belong to the discretionary sector, we think the strength from this group is the same theme as industrials. Building materials, home furnishings and fixtures, and homebuilders stocks are all benefiting from rotational tailwinds right now.
Here’s the iShares Home Construction ETF (ITB) breaking out to fresh all-time highs.
ITB is completing a base formation similar to those we’ve seen from so many other stocks and indexes the past few months. However, this chart is slightly different than most of the others. Notice how the completion of this base puts ITB at new all-time highs rather than just being at new 52-week highs. It’s hard to be bearish when new all-time highs are being made.
3/ Crude Oil Challenges Support
While market leaders test resistance, the laggards continue to hold above their respective support levels.
This is particularly true for crude oil as price challenges a critical polarity zone at former highs. This area also coincides with the AVWAP from the pandemic lows, making it a confluence of support.
The line in the sand lies at $66 per barrel for crude oil.
Bulls want to see this level hold. However, if crude violates this area, there could be further downside and increased selling pressure for energy-related assets.
4/ Will Emerging Markets Follow CEW?
Emerging markets have been on a tear—both equities and currencies.
But the failed breakout in the Emerging Market Currency Fund ETF (CEW) raises concerns over continued emerging market strength.
Check out CEW overlaid with the Emerging Markets Ex-China ETF (EMXC):
Notice how closely the emerging market currency and equity ETFs follow each other. If CEW continues to drop, we would imagine similar selling pressure spilling over into EMXC.
U.S. stock market bulls want to witness sustained strength overseas, especially from emerging markets. Why? Cyclical value-oriented sectors dominate emerging market equities. And strength across these markets would support a healthy rotation into industrial and other cyclical sectors stateside.
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Originally posted 28th June 2023
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