By J.C. Parets & All Star Charts
1/ Energy Revives the Uptrend
2/ ARKF Makes the Move
3/ Yields and Dollar Diverge
4/ Crude Resolves Higher
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1/ Energy Revives the Uptrend
Although the energy sector has been the weakest this year, it continues to demonstrate signs of life.
The Oil & Gas Exploration and Production ETF (XOP) was particularly strong in today’s session, jumping 2.48%.
As you can see in the above chart, the price has found support multiple times at the November 2021 highs. As long as this level holds, the primary uptrend remains intact.
Also notice that price is pushing up against the anchored volume-weighted average price (AVWAP) from last year’s highs, making it a critical short-term resistance area.
If buyers drive a decisive breakout, XOP could revisit its former highs from earlier this year.
2/ ARKF Makes the Move
With the stock market enjoying a solid rally from its lows last year, it was only a matter of time before the most speculative growth areas started to participate.
Today, the ARKFintech Innovation ETF (ARKF) rose over 3%, reaching new 52-week highs.
After 12 months of building a bottoming formation, price finally pierced to the upside through the upper bounds of the range as buyers took control.
Notice that momentum, as measured by the 14-day relative strength index (RSI), is hitting overbought conditions, and a flat-to-upward sloping 200-day moving average is present on the chart. All this evidence suggests that a bearish-to-bullish reversal in the primary trend.
If this new high holds, ARKF could complete this base and kick off a new leg to the upside.
3/ Yields and Dollar Diverge
The one-two punch that knocked the market on its back last year is out of sync.
We’re talking about the dollar and rates falling out of rhythm and beginning to diverge.
Check out the U.S. 10-year yield (TNX) overlaid with the U.S. Dollar Index (DXY):
While neither has made any progress since stocks bottomed last October, the 10-year yield is challenging fresh decade highs as DXY is pressing toward its year-to date lows.
It’s clear that this strong positive relationship is shifting along with the Fed policy that fueled it.
Regardless, stocks don’t seem to mind. In fact, the rise in interest rates supports the rotation we’re witnessing into cyclical value-oriented areas of the market.
4/ Crude Resolves Higher
Buyers can’t seem to resist energy stocks, as last year’s leadership group led today’s session.
But it’s not only equities. The bid among energy stocks is spilling over in the underlying commodities.
Crude oil broke out of a multi-month consolidation today, reclaiming a key level of former resistance.
The bias now appears higher for crude despite it remaining within an eight-month range and a bearish momentum regime. As long as crude can hold above $74, the path of least resistance should remain toward its year-to-date highs at approximately $83.
Bigger picture: Energy commodities and stocks rallying in tandem represent a constructive development for global risk assets and suggest further rotation to come.
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Originally posted 11th July 2023
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