Chart Advisor: Big Week for Big Tech – All eyes turn to mega-cap tech stocks.

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Tuesday, 25th October, 2022

1/ Big Week for Big Tech

2/ Stocks Still Outperform Bonds

3/ The US Dollar Wavers

4/ Bitcoin Continues to Coil

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/ Big Week for Big Tech

All eyes are on mega-cap tech stocks this week, with key earnings reports coming from the FAAMG companies: Apple, Amazon, Google, Microsoft, and Meta Platforms.

Microsoft announced its earnings after market close today, with the software giant slightly beating estimates on both the top and bottom lines. Here’s a daily chart of MSFT with several years of price history:

Source: All Star Charts, with data provided by Optuma

Earlier in the month, MSFT was trading at its lowest level since January of 2021. Over the past few weeks, the stock has printed a bullish momentum divergence and made a swift rebound off a key Fibonacci extension and a shelf of former highs from 2020. Today’s close puts it back above an important level at the pivot lows from June.

However, as with most tech stocks, the primary trend is still lower, or sideways at best. Until this changes, we could anticipate more uncertain price action in the near future.

2/ Stocks Still Outperform Bonds

Comparing stocks to alternatives such as bonds not only tells us where the alpha lies, but also paints a picture of how market participants are currently positioned.

In the chart below, we’re looking at the relationship between the Value Line Geometric Index (VLG) and the 20+ Year U.S. Treasury Bond ETF (TLT) to give us an idea of how the average stock is performing relative to the bond market.

Source: All Star Charts, with data provided by Optuma

With the ratio breaking out from a multi-year base to new highs, stocks continue to outperform bonds. However, in the current bear market environment, this simply means that they are the better of two bad options.

Both stocks and bonds have experienced increasing selling pressure all year. Until we see some significant improvements in the absolute trends, this could remain the case.

3/ The US Dollar Wavers

Rallies don’t get much stronger than that in the U.S. dollar this year. But as we head into the end of the year, the dollar’s parabolic advance threatens to break down.

The U.S. Dollar Index (DXY) broke below a critical extension level today, undercutting 111.50.

Source: All Star Charts, with data provided by Optuma

This key level represents potential support. Now that DXY has broken down below this level, we’re watching for a Relative Strength Index (RSI) reading below 40 for confirmation.

If this occurs, the dollar rally could be in danger of collapse as the current advance exits a bullish momentum regime.

Risk assets, particularly stocks, could receive a much-needed boost in this scenario.

4/ Bitcoin Continues to Coil

While macro markets have housed some notable volatility in recent months, Bitcoin appears to be stuck in a trendless market. Bitcoin’s price volatility, as measured by the width of its monthly Bollinger bands, is at its lowest level since June 2020.

Source: All Star Charts, with data provided by Optuma

Regardless of which market we’re analyzing, when price action becomes more coiled, buyers or sellers are ultimately forced to react. This period of shrinking volatility is often met with violent unwinding in either direction.

With Bitcoin booking its largest single-day gain in over a month today, a new period of volatility expansion could be beginning. We’re on the lookout for upside follow-through tomorrow for confirmation that a fresh leg higher could be underway.

Originally posted 25th October, 2022

Disclosure: Investopedia 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.