Chart Advisor: Equities Tumble

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Tuesday, 21st February, 2023

1/ Oil Services Lose Support

2/ The German 10-Year Yield Nears Multi-Year Highs

3/ Industrials Outperform

4/ Bulls Begin to Replace Bears

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1/ Oil Services Lose Support

U.S. equities led the way lower today as selling pressure gripped the markets.

As you can see, the Oil Services ETF (OIH) failed to hold its recent breakout and returned to its former range.

Source: All Star Charts, with data provided by Optuma

As shown in the lower pane, momentum (as measured by the 14-day RSI) has been waning as of late. This resulted in a bearish divergence as price reversed at a critical level of interest.

Seeing this cycle’s leaders fail at such a critical level suggests buyers may need more time to absorb the overhead supply before we can get a decisive upside resolution.

2/ The German 10-Year Yield Nears Multi-Year Highs

Global yields are on the rise again.

Today, the yield on the 10-year U.S. Treasury note hit its highest level since last fall, while its German counterpart could be poised to print fresh multi-year highs.

Here is a daily chart of the German 10-year yield:

Source: All Star Charts, with data provided by TradingView

The rising interest rate environment remains intact and is a global phenomenon.

If European benchmark yields begin to register new highs, it could only be a matter of when, not if, U.S. yields do the same.

Higher yields translate into selling pressure for bonds and other long-duration assets such as growth stocks. So far, growth areas of the market have been relatively unscathed from the effects of rising yields. But that could quickly change.

3/ Industrials Outperform

After trading in a sideways range on a relative basis for over two years, industrials are on the verge of reasserting their leadership role relative to the overall market.

The chart below shows the Equal Weight Industrials (RGI) vs. Equal Weight S&P 500 (RSP) ratio emerging from an extensive base to new 14-year highs.

Source: All Star Charts, with data provided by Optuma

As long as this ratio holds above the shelf of former highs, we could see continued outperformance from industrials.

4/ Bulls Begin to Replace Bears

After 45 weeks of bears dominating the AAII‘s weekly sentiment survey, bulls now outnumber bears for the second consecutive week.

Signs of burgeoning optimism reveal another constructive development for stocks, following one of the longest stretches of pessimism during the past twenty years.

Source: All Star Charts, with data provided by Optuma

You need bulls to have a bull market. The same can be said for new highs. 

We’re already witnessing more stocks making new highs than new lows. If this trend continues to unfold, it could fuel rising optimism.

As bulls begin to replace bears, the path higher for stocks could become more evident and the uptrend more sustainable.

Originally posted 21st February , 2023

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