By J.C. Parets & All Star Charts
1/ Bitcoin Makes the Move
2/ Homebuilders Hit Resistance
3/ High Beta Is Getting Halted
4/ Time for Utilities to Outperform?
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1/ Bitcoin Makes the Move
After a prolonged nap, Bitcoin (BTC/USD) bulls seem to be back, ready to take control.
As you can see, after Bitcoin briefly violated the lower bounds of a flag pattern last month, buyers stepped in and reclaimed this support level today, resulting in a potential failed breakdown.
It is not the first time we have seen this type of shakeout in BTC this year. As happened in Q1 and Q2, the price reversed higher after BTC put bear traps on the road.
If buyers push prices above $30,000 in the coming two days, we could see a swift reaction to the upside.
2/ Homebuilders Hit Resistance
Major U.S. indexes like the S&P 500 and the Nasdaq 100 ran into overhead supply and have halted their recent advance.
When we dive beneath the surface, we’re seeing similar behavior at an industry level.
As you can see, the S&P Homebuilders ETF (XHB) is back at all-time high resistance.
The action in XHB shows that it isn’t just large-cap tech that is due for a pause, but other areas in the market as well.
Taking a look at the 14-period relative strength index (RSI) shows a bearish RSI divergence, which supports the case for a pause.
As long as the price is below $86, we might see some sideways action for XHB in the foreseeable future. However, a break above this area of interest would likely mean a fresh leg higher for XHB.
3/ High Beta Is Getting Halted
One of our favorite metrics for gauging risk appetite is through the high beta (SPHB) vs. low volatility (SPLV) ratio.
Long story short, when SPHB/SPLV trends higher, investors favor riskier stocks over their alternatives. The opposite is true when this ratio points lower, suggesting an environment conducive to broad market selling pressure.
As you can see in the above chart, high-beta stocks are getting halted at a shelf of former highs versus their low-volatility counterparts.
Notice also that the 14-period RSI is printing in a bearish divergence, suggesting that a correction may be coming.
Bulls likely want to see a decisive breakout from this multi-year base, as it would suggest a risk-on tone for the market.
4/ Time for Utilities to Outperform?
Regarding some of the most defensive sectors, utilities (XLU) are back at the lows from 2021 relative to the S&P 500 (SPY).
Outperformance from these stocks is not something we tend to see during bull markets, as it is evidence of risk aversion, not risk-seeking behavior.
As you can see in the lower pane, momentum is printing a potential bullish divergence, making higher lows despite the lower lows in the ratio.
If there’s a time and place for these defensive stocks to assume some leadership, this is it.
Bulls probably do not want to see this ratio rise, as it would tell us that investors are positioning for tough times ahead. Conversely, a break through this support level would be a big positive for risk assets.
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Originally posted 8th August 2023
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