Chart Advisor: Dow Slides Back in the Box

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

1/ Dow Slides Back in the Box

2/ Tracking the 5-Year for Confirmation

3/ Cautiously Bullish

4/ Bitcoin Retests Key Level

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 Slides Back in the Box

Growth stocks aren’t the only market area contending with sellers.

Even the more value-oriented Dow Jones Industrial Average (DJIA) is pulling back.

Check out the Dow e-mini futures contract undercutting a critical shelf of former highs as it nears an upward-sloping 200-day moving average:

A tight bearish momentum divergence in the 14-day relative strength index (RSI) clearly warned of waning strength.

The stock market correction deepens as participation deteriorates beneath the surface.

We’re monitoring the major stock market indexes and individual names for signs of near-term reversals.

If more stocks fall back into their prior ranges, like the Dow, a far more severe correction may lie ahead for U.S. equities.

2/ Tracking the 5-Year for Confirmation

The rising rate regime defines the market environment.

We’ve highlighted the structural uptrend for long-duration U.S. yields. That trend remains intact as the tactical bias flips from neutral to bullish for interest rates.

Here’s a triple-pane chart of the U.S. 5-year, 10-year, and 30-year yields, highlighting the breakouts further out on the curve:

With the 10-year and 30-year rates breaking above their former 2022 highs, will the 5-year yield follow?

The breakouts in the longer-duration rates are likely holding if and when the 5-year reaches fresh highs. So we’re monitoring the middle of the curve for confirming evidence in the coming weeks.

3/ Cautiously Bullish

Energy stocks are resolving higher, holding their breakouts—something few market areas can claim this quarter.

It makes sense. Interest rates are rising across the curve as the U.S. 10-year and 30-year yields eclipse last year’s high.

But while rates continue to rise and energy names are ripping, crude oil has not been able to break out.

Notice the multiple contact points along the $83.25 level. That’s the line in the sand.

Market participants have proven the importance of this level as sellers defend this critical shelf of former highs.

But the more times price tests a level, the higher the likelihood it will break.

Meanwhile, we are monitoring black gold for further weakness toward $74. Continued selling pressure in crude would not bode well for energy.

4/ Bitcoin Retests Key Level

Price action expands and contracts, oscillating between low- and high-volatility periods.

Unsurprisingly, Bitcoin (BTC/USD) experienced extreme volatility yesterday after a historic collapse in activity. (Some even joked that Bitcoin was trading as if it had been delisted.)

Check out the Bitcoin chart below with the one-day rate of change (ROC) in the upper pane and the 14-day RSI in the lower pane:

Bitcoin hasn’t experienced such an extreme one-day ROC since it bottomed last fall. Yesterday also marked its lowest momentum reading in over a year.

While the key takeaway is that periods of low volatility breed explosive price moves, ignoring Bitcoin’s tendency to bottom after downside flushes in price is difficult.

Perhaps we’ve witnessed a significant low in Bitcoin, given the critical polarity zone holds.

Originally posted 18th August 2023

Join the Discussion

Thank you for engaging with IBKR Campus. If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.

Your email address will not be published. Required fields are marked *

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.

Disclosure: Futures Trading

Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.