Chart Advisor: Friday’s Hangover Lingers

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Monday, 17th April, 2023

1/ DXY Holds Its Range

2/ Biotechnology Stocks Hit Resistance

3/ Copper Miners Set the Pace

4/ Will NEM Join the Pack?

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/ DXY Holds Its Range

A weaker dollar is a key ingredient for a risk-on rally. Yet, like interest rates, the dollar refuses to roll over.

Although the U.S. Dollar Index (DXY) has violated a parabolic trendline, retreating decisively from its September peak, it has held within a tight range for the past four months.

Source: All Star Charts, with data provided by Optuma

The 105 level has provided a key area of resistance. On the flip side, the February pivot lows at approximately 101 mark the lower boundary of the year-to-date range.

If and when DXY undercuts these pivot lows, a broad risk-on rally could ensue, especially for long-duration assets and precious metals. We’re monitoring the 14-day relative strength index (RSI) for an oversold reading, to confirm if the bears remain in control.

2/ Biotechnology Stocks Hit Resistance

Biotechnology stocks tend to be more volatile and carry a higher beta than their healthcare peers. For this reason, they are excellent at determining market participants’ willingness to accept additional risk.

As you can see, the Biotech ETF (IBB) is running into a significant resistance level at old highs for the third time since last year:

Source: All Star Charts, with data provided by Optuma

This polarity zone also coincides with a former high from 2015, making it a crucial level of interest.

With so much price memory here, this could be a logical place for some corrective action before buyers absorb all the overhead supply. However, if and when they do, an upside resolution from this base could carry a clear risk-on message. Some bullish rotation may be warranted at this level.

3/ Copper Miners Set the Pace

Copper is one of our favorite risk appetite indicators as it is an excellent barometer for global growth and overall market health. The same is true regarding copper’s associated mining stocks.

Below is a chart of the Copper Miners ETF (COPX) breaking out of a massive base relative to copper futures:

Source: All Star Charts, with data provided by Optuma

These mining stocks are reaching their highest level in almost a decade and completing a major trend reversal relative to copper.

Seeing these equities outperform the base metal speaks to increasing risk appetite in the sector and could be another strong data point in favor of the bulls. 

Commodity and stock market bulls want to witness upside follow-through in the coming weeks to confirm the breakout and associated risk-on tone.

4/ Will NEM Join the Pack?

Evidence supporting a fresh bull market in gold mining stocks is mounting. The Gold Miners ETF (GDX) has recently outperformed the broader market and even gold itself as it challenges fresh 52-week highs.

But a breakout from Newmont Corp. (NEM), a bellwether stock within the mining industry, could provide decisive confirmation of a new bull market.

NEM is carving out a potential reversal pattern below a shelf of former lows:

Source: All Star Charts, with data provided by Optuma

These lows mark a critical polarity zone and a significant amount of supply. 

An upside resolution and fresh 52-week highs for this gold mining bellwether would confirm the bullish price action underway, adding confidence to a sector already on the upswing.

The strongest stocks not only perform well on absolute terms but also outperform their alternatives. GDX checks both of these boxes, and the trend could pick up pace once NEM joins the pack.

Originally posted 17th April 2023

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