By J.C. Parets & All Star Charts
Monday, 27th March, 2023
1/ Getting a Read on Yields
2/ Stocks Over Commodities?
3/ It’s a Bull Market for Chocolate!
4/ Bitcoin Reaches a Key Level
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1/ Getting a Read on Yields
Two relationships that have proven very helpful in offering insight on the bond market are the copper vs. gold ratio and regional banks vs. REITs ratio. Here they are, overlaid with the 10-Year U.S. Treasury yield:
These ratios have historically had a significant positive correlation with yields themselves. Due to its pro-cyclical nature, copper tends to outperform gold during rising interest rate environments. Similarly, banks, due to the economics of their lending operations, tend to outperform their equity alternatives when yields are moving higher.
However, as illustrated by the topping formations in these ratios, their correlation with yields has dislocated in recent years. With Treasury yields looking vulnerable at key support levels, the odds of yields catching lower in the near future to confirm the breakdown in these two ratios could be high.
2/ Stocks Over Commodities?
Commodities have been the best-performing asset class over the past two years.
However, when we compare them to stocks, the evidence suggests a trend reversal could be underway.
The chart below shows the S&P 500 (SPX) vs. CRB Commodity Index (CRB) ratio carving out a bottoming formation over the past year:
With price pressing against the upper bounds of the range with a 200-day moving average (MA) that has flattened and turned higher, stocks could resolve higher against commodities and begin outperforming over longer timeframes.
3/ It’s a Bull Market for Chocolate!
With the market assuming a more defensive posture amid the volatility of recent weeks, we’re noticing more consumer staples stocks on the list of new highs.
Shares of The Hershey Company (HSY) are charted below, along with their relative trend against the S&P 500:
If a stock is making new highs, or breaking out of a bullish pattern on absolute terms, we should also examine whether it is making new highs relative to its peer group. In this case, it’s the broader market.
As such, we’re looking for HSY to break out of this multi-month base versus the S&P 500 as confirmation of its new highs on an absolute basis.
4/ Bitcoin Reaches a Key Level
When it comes to cryptocurrencies, Bitcoin has remained resilient after completing a short-term reversal pattern two weeks ago.
After successfully defending the prior-cycle highs from 2017, Bitcoin resolved higher from a base and rallied to the next line of resistance between $28,000 and $30,000.
This level represents where Bitcoin and other cryptocurrencies found support and rebounded during the last bull market in 2021.
With so much price memory at this level, former support could turn into resistance. A consolidation below this area would make sense.
If and when buyers absorb the overhead supply at this zone, we could anticipate a new leg higher. Until then, we could see some corrective price action from Bitcoin and other cryptocurrencies.
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Originally posted 27th March, 2023
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