Chart Advisor: Dow Eyes Support – Stocks and bonds move lower as yields continue to rise.

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Thursday, 20th October, 2022

1/ Dow Eyes Support

2/ Oil Services Test Range Highs

3/ Value Is Winning

4/ Yields Need to Digest Gains

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/ Dow Eyes Support

The Dow Jones Industrial Average (DJIA) has rallied more than 7% from its intraday lows from last Thursday to today’s highs. As the latest spurt of upside momentum appears to be stalling out, we’re focused on a number of support levels to see if they can hold.

The Dow chart below shows the two key levels we’re watching. The first zone of support marks the pre-pandemic highs, while the second marks the pivot lows from this summer.

Source: All Star Charts, with data provided by Optuma

As you can see, these levels coincide near the 29,600—29,700 level. Whether or not the index can remain above this polarity zone over the coming weeks will give us valuable insight about the near-term course of the U.S. equity market.

2/ Oil Services Test Range Highs

Shares of companies in the oil services industry more than tripled from March of 2020 to March of 2021. Afterward, momentum stalled and the sector has made no progress in the year and a half since.

The chart below shows the SPDR Oil & Gas Equipment and Services ETF (XES) testing the same level where it stalled out in early 2021.

Source: All Star Charts, with data provided by Optuma

Despite trending sideways over the past 18 months, the structural trend is still intact and trending higher. After a massive rally, periods of corrective action such as the current one are normal.

Once buyers have finished digesting gains and absorbing the overhead supply at this key level, the range could easily resolve higher in the direction of the underlying trend. In fact, XES just closed above its 2021 highs for the first time since June.

3/ Value Is Winning

A major point of discussion over the past two years has been the relationship between value and growth stocks. Is it finally time for value to take the lead?

If we look at the Dow Jones Industrial Average (DIA) vs. Nasdaq 100 (QQQ) ratio, the answer could be a “yes.”

The value-oriented Dow is printing new multi-year highs relative to the growth-centric Nasdaq.

Source: All Star Charts, with data provided by Optuma

This trend has accelerated in recent weeks, supporting continued outperformance from value and cyclical stocks over long-duration growth stocks for the foreseeable future.

Under this scenario, investors would overweight the Dow and underweight the Nasdaq 100—a strategy many money managers haven’t employed for over a decade.

4/ Yields Need to Digest Gains

The U.S. 10-year Treasury yield is up for 11 consecutive weeks, posting a stretch of upside momentum not seen since the late 1970s. If today’s action holds into tomorrow’s close, it would mark 12 weeks in the green for the 10-year yield.

Source: All Star Charts, with data provided by Optuma

As the benchmark rate takes out the key psychological level of 4%, this could be a logical place and time to see the explosive rise in rates take a breather. 

While yields across the yield curve continue to rise, the current rally is looking less and less sustainable. We could expect some backing and filling over the weeks to come.

Originally posted 20th October, 2022

Disclosure: Investopedia

Investopedia.com: 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.