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Chart Advisor: Examining Natural Gas

Posted October 9, 2023 at 7:51 am

By Shane Murphy, CMT

1/ Natural Gas Spotlight

2/ Defensives Underperforming

3/ Financials Benefit from Steepening Yield Curve

4/ Boring Bitcoin

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1/ Natural Gas Spotlight

Energy commodities are starting Q4 on a bearish note. That is, except for Natural Gas. Natural Gas prices moved higher last week, breaking out from a multi-month basing pattern. Picture perfect price action for change of trend style investors.

Natural Gas closed above the 200-day moving average for the 2nd week in a row. October-Nov is a seasonally strong period for Natural Gas, we’ll see if this holds true for 2023. 

2/ Defensives Underperforming

Defensive stocks are underperforming the broad market. This is normally the case during healthy periods of investor risk appetite. Utilities and Consumer Staples are the purest underperformers while Healthcare has held up relatively well given the diversity of the sector.

The price ratio is above the Feb 2023 highs and confirming the action we’ve seen from the total US stock market. Given the high positive correlation, a divergence between this ratio and the market would be very notable.

3/ Financials Benefit from Steepening Yield Curve

When long yields rise faster than short yields, the spread between the two increases. This is referred to as a bear steepener. One beneficiary of a steepening yield curve is US banks. A steep yield curve improves the spread between what is borrowed (short-term deposits) and earned (long-term lending).

It’s important to note, a bear steepener typically punishes stocks in the short-term and just because equal-weight Financials are outperforming on a relative basis, doesn’t mean they are necessarily improving on an absolute basis.

4/ Boring Bitcoin

When an asset is struggling to find trend, it is best to stay away and focus on other opportunities. Crypto is a good example of an asset struggling to find its footing and establish trend.

Bitcoin has been range-bound for the better part of a year. The 30,000 level is a great example of the principle of polarity, where prior support will become new resistance. A breakout above 30,000 is what many trend followers are waiting for.

Originally posted 9th October 2023

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