By J.C. Parets & All Star Charts
1/ Chinese Tech Turns It Up
2/ The Big Boys Remain Halted
3/ Utilities Look for a Floor
4/ Heating Oil Hits Overhead Supply
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1/ Chinese Tech Turns It Up
Chinese equities have been thrown out by investors far and wide this year as bearish sentiment spreads for the battered group of stocks.
However, when we look at a long-term chart of the China Internet ETF (KWEB), it continues to show constructive signs of a potential bottom. The index made its cycle low last fall at the same time as U.S. indexes. It has been moving sideways and building a base since.
As you can see, price has been holding above a critical support level all year at the lows from the inception of the exchange-traded funds (ETF) in 2013.
We could see further basing action and an eventual reversal pattern resolution for Chinese stocks if KWEB is above this polarity zone at $26.50. This would be a bullish development for risk assets worldwide.
2/ The Big Boys Remain Halted
The stock market has been in a corrective phase, moving sideways for the past couple of weeks.
Bears have taken control and have dominated even some of the largest stocks in the world.
Below is our equally weighted index of the 10 largest U.S. stocks:
As you can see, the index is struggling below overhead supply. This area represents where these stocks peaked in 2021, making it a critical resistance zone.
Momentum has been waning even as the custom index made new highs last month, resulting in a potential bearish divergence.
Until these names finish digesting gains and resume their upward path, markets are likely to remain volatile. In the meantime, we want to be prepared for more sideways and messy price action.
3/ Utilities Look for a Floor
Utilities are often referred to as bond proxies or safe-haven stocks. This is because they tend to outperform and offer lower volatility during bear markets. They also pay some of the highest yields of any equities. For the same reasons, these stocks tend to underperform during bull markets and come under pressure when rates are rising.
This is exactly what we’ve seen this year as the Dow Jones Utilities Average (DJU) has fallen roughly 10% even as the S&P 500 (SPX) has gained about 15%.
The ratio chart of the two indexes, shown falling steadily for the past 12 months, is a perfect depiction of investors’ disinterest for this group of defensive stocks right now.
With the ratio running into its lows from late 2021, which is right around when the S&P 500 peaked, we’re wondering if we’ll see the same again this time around. If we were to zoom out another 20 or so years on this ratio, it would find itself at the same level it was when stocks peaked back in 2000.
While the timing and price history is certainly something to note, we don’t think this is evidence of a long-term top and impending stock market crash. However, we do think it could be a logical level to finally see some outperformance from utilities.
4/ Heating Oil Hits Overhead Supply
Crude oil distillates have caught a stealthy bid in recent weeks.
While gasoline and crude oil have held the headlines, heating oil has been on a tear with positive returns nine weeks in a row.
Check out heating oil futures pulling back to a critical shelf of former highs, coinciding with the upper bounds of a downward-sloping channel:
This is a logical area for the rally in heating oil to take a breather. And with positioning nearing extremes, it seems likely.
A digestion or price consolidation period would be a healthy development for the tactical uptrend. But if and when heating oil rips back above those former highs, we imagine that crude oil and the rest of the energy space could catch a similar bid.
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Originally posted 28th August 2023
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