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
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: Forex
There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.
Disclosure: Bitcoin Futures
TRADING IN BITCOIN FUTURES IS ESPECIALLY RISKY AND IS ONLY FOR CLIENTS WITH A HIGH RISK TOLERANCE AND THE FINANCIAL ABILITY TO SUSTAIN LOSSES. More information about the risk of trading Bitcoin products can be found on the IBKR website. If you're new to bitcoin, or futures in general, see Introduction to Bitcoin Futures.
Join The Conversation
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.