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Chart Advisor: Financials Took a Hit

Posted August 17, 2023 at 1:40 am

By J.C. Parets & All Star Charts

1/ Financials Took a Hit

2/ Bond Market Remains Stress-Free

3/ USD/JPY Resolves Higher

4/ A Dull Month for Bitcoin

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/ Financials Took a Hit

Yesterday, the financial sector (XLF) had its worst day since May as selling pressure picked up steam.

Fast forward to  today, and the bulls are trying to repair some damage by supporting price at the 200-day moving average.

As long as XLF remains above this long-term average and the pivot highs from Q1 and Q2, we could see investors step in to buy the current dip along with rotation back into value-oriented areas.

However, if buyers do not defend these support zones, there could be further selling pressure in the weeks ahead.

2/ Bond Market Remains Stress-Free

Credit spreads remain tight despite the stock market correction

Check out the overlay chart of the Russell 2000 ETF (IWM) with the High-Yield Bond ETF (HYG) and U.S. Treasury ETF (IEI) ratio:

When markets are under stress, it shows up in credit. A steep decline in the HYG/IEI ratio would signal an expansion in high-yield credit spreads.

But credit spreads aren’t expanding. Instead, they’re contracting—a clear sign of a healthy market.

As long as the HYG/IEI ratio continues challenging overhead supply, we could see a mild correction in the underlying uptrend for stocks.

3/ USD/JPY Resolves Higher

USD pairs reach crucial levels while the U.S. Dollar Index (DXY) tests a confluence of overhead supply.

It’s a coincidence that sets up critical resolutions in numerous USD pairs.

The U.S. dollar vs. Japanese yen (USD/JPY) is at the top of that list, completing a six-week base:

The path of least resistance now leads higher for the dollar-yen as long as it trades above 145.

If the breakout holds and additional USD buy signals materialize, increased selling pressure will likely hit many risk assets.

For now, it’s still up and to the right for the USD/JPY—a very similar picture to last year.

4/ A Dull Month for Bitcoin

August has historically been a dull month for Bitcoin (BTC/USD), and we’re seeing that seasonal pattern play out right on cue, as the digital coin has remained unchanged in the past two weeks.

Below is the average cumulative August performance of Bitcoin since 2011.

As you can see, even though the first two weeks tend to be positive, most of August’s weakness starts toward the middle of the month. We’re there now.

This tells us that, if BTC continues to follow its seasonal pattern, it wouldn’t be surprising to see some bearish to sideways action throughout the remainder of the month.

Originally posted 16th August 2023

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