By J.C. Parets & All Star Charts
Wednesday, 19th April, 2023
1/ Gap Fill and Chill
2/ Banks: The Smaller the Weaker
3/ Will Bond Market Volatility Catch Lower?
4/ A Risk Reversal for PALL
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/ Gap Fill and Chill
Netflix (NFLX) kicked off earnings for the mega-cap growth companies last night, and experienced significant volatility in after-hours trading. After a big move lower, shares broke even and turned positive after last night’s earnings report.
However, shares opened lower today, gapping back into their old range. We’ve seen a handful of similar gaps occur at this level since last year. We’ve labeled three of the last four earnings reactions in the daily bar chart below:
NFLX collapsed after a big miss on its Q1 2022 earnings report this time last year. This created a memory gap, or volume pocket, between $250 and $330.
After some downside follow-through early last year, it took two full quarters for NFLX to recover back to $250, forming resistance. Shares gapped higher on Q3 and Q4 earnings, resolving above $330. This marked the completion of the gap-fill move for NFLX.
Ahead of the company’s most recent earnings report this week, price pulled back to test the $330 level from above. While price only fell roughly 3% today, price gapped back into its old range. As long as it stays below $330, the trend could remain uncertain for NFLX.
2/ Banks: The Smaller the Weaker
The chart below does an excellent job of illustrating the divergence between banks of different sizes. Below is a one-year chart of our custom Big 6 Bank Index, money center banks (KBE), regional banks (KRE), and community banks (QABA):
As you can see, while the largest and most important banks are still holding above their 2022 lows and resolving higher from a tight consolidation pattern, KBE, KRE, and QABA violated this level last month and remain trapped in a coil, or have headed lower in a tailspin since.
This tells us that the further down the capitalization scale you go, the worse it looks for banks. As such, bulls want to see these indexes dig in, catch higher, and follow the path of the biggest banks. Participation from bank stocks is a vital prerequisite for a healthy bull market.
3/ Will Bond Market Volatility Catch Lower?
The CBOE Volatility Index (VIX) measures the level of risk associated with the stock market, while the Move Index (MOVE) tracks volatility in the bond market.
When we overlay the VIX with the MOVE, we see that they have tracked each other very closely over the past decade, up until recently:
Last month, MOVE hit its highest level since 2008 while VIX remained in a sideways range.
Fast forward to today, and the VIX is reaching new 52-week lows, suggesting that volatility could subside for equities. The question now becomes whether MOVE will catch lower to the VIX.
4/ A Risk Reversal for PALL
We pointed out last week that the “smart money” has been buying palladium in large quantities. In fact, commercial hedgers recently held their largest net-long position in history.
This stretched positioning reveals the strongest hands are bullish on palladium, setting the stage for a potential rally—one that could already be underway.
The Aberdeen Standard Physical Palladium ETF (PALL) is charted below, as it’s shown reclaiming key former support:
This year’s breakdown in PALL has the hallmarks of a failed move. The path of least resistance could be higher now that bulls have forced prices back above their former 2020 lows. From failed moves often come fast moves in the opposite direction.
If this turns out to be a failed move in PALL and prices rebound higher, we could also see precious metals and other industrial metals catch a bid.
—
Originally posted 19th April 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.
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.