By J.C. Parets & All Star Charts
1/ German Equities Absorb Supply
2/ First Uranium, Now Coal?
3/ TLT Revisits Last Year’s Lows
4/ Currencies Fall in Favor of the Greenback
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1/ German Equities Absorb Supply
European equities enter correction mode, much like their U.S. counterparts. And like equities stateside, European stocks pause at logical levels of resistance.
Here’s the Germany ETF (EWG) running into a shelf of former highs:
German equities contend with a significant amount of resistance at the $30 level. But it’s a logical level for the rally to ease, allowing demand to absorb the overwhelming supply.
Remember, stock market corrections are normal and healthy.
Perhaps EWG’s near-term outlook suggests sideways action, but a breakout to new 52-week highs would flip our bias higher and add another feather to the hat of stock market bulls worldwide.
2/ First Uranium, Now Coal?
Breakouts in the peripheral areas of the energy space—such as uranium and coal—support broadening strength and further upside potential for the entire energy sector.
Uranium has undoubtedly caught a bid in recent weeks. But will coal stocks do the same?
Check out our coal index pressing against the upper bounds of a multi-year range:
Two names in the index are already resolving higher—Consol Energy (CEIX) and Alpha Metallurgical Resources (AMR). If their strength begins to spill over into the other components, it may be merely a matter of time before our coal index follows suit.
The broader energy space is also likely to trend higher if and when coal stocks catch fire.
3/ TLT Revisits Last Year’s Lows
The unrelenting uptrend in global yields embarks on a fresh leg higher, more significantly further out on the curve.
That likely means only one thing for U.S. Treasuries—more downside action.
Here’s the long-duration U.S. Treasury Bond ETF (TLT) posting new year-to-date lows:
With selling pressure picking up in the bond market, the question becomes whether the 2022 lows will act as support.
If they do and the bond decline stalls, stocks will likely benefit from the lack of bond market volatility.
On the flip side, the stock market averages are likely to be on the ropes if TLT slices through last year’s lows.
4/ Currencies Fall in Favor of the Greenback
The U.S. Dollar Index (DXY) continues to challenge a confluence of overhead supply.
Meanwhile, major global currencies slide against ol’ King Dollar.
Yesterday, we highlighted the breakout in the USD/JPY pair. Today, it’s the breakdown in the Australian dollar (AUD).
The AUD/USD pair is undercutting its May pivot low, reaching its lowest level since last fall. Sellers have taken complete control as the Aussie slides beneath a multi-year downtrend line and momentum registers an oversold reading on the 14-day relative strength index (RSI).
A weakening AUD/USD supports a broad USD advance as more global currencies fall in favor of the greenback.
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Originally posted 17th August 2023
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