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
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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.
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.
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.
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.
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.
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Originally posted 20th October, 2022
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