Chart Advisor: Gold Gets Hit – Gold hits its lowest level since early 2020 as stocks remain under pressure.

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Thursday, 15th September, 2022

1/ Gold Gets Hit

2/ New Lows for Big Tech

3/ Commodity Currencies Take a Bow

4/ Energy Stocks Hang Tough

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/ Gold Gets Hit

The woes for gold bugs continue as gold futures collapse to their lowest level since the spring of 2020. Precious metals can’t seem to catch a break, and are having no problem breaking down.

We can now add gold to the list of assets that have completed major topping formations. But there might be more to the story than a classic breakdown.

Source: All Star Charts, with data provided by Optuma

Just as fresh multi-year highs for gold back in 2019 foreshadowed rising inflation, could new multi-year lows today imply a deflationary environment on the horizon?

Regardless, a breakdown in gold does not bode well for precious metals and related stocks.

2/ New Lows for Big Tech

When it comes to the most important stocks, it’s all about the tech stocksMega-cap technology companies have an outsized influence in the major U.S. indexes and feature in most investors’ portfolios.

The chart below illustrates just how paramount their performance is for the broader market. We have overlaid the relative trend between technology stocks—represented by the Technology Select Sector Fund (XLK)—and the S&P 500 (SPY), graphed alongside the Nasdaq 100 on absolute terms.

Source: All Star Charts, with data provided by Optuma

While the chart shows less than a year of price data, the positive correlation between the two is consistently strong. This makes perfect sense as technology stocks represent roughly half of the weighting in the Nasdaq 100.

Not only are we seeing new lows in a growing number of large-cap tech stocks this week, but the group is also making new 52-week lows at the index level. This type of relative weakness suggests we could expect further downside for the market’s largest stocks. If that’s the case, the major averages and broader market may come under increased pressure as well.

3/ Commodity Currencies Take a Bow

The U.S. dollar is finally making headway against its most formidable opponent, the Canadian dollar (CAD). After a series of false starts, the USD/CAD currency pair is printing fresh 10-month highs.

The chart below displays the multi-month base and the inconsistent price action surrounding the recent breakout level.

Source: All Star Charts, with data provided by Optuma

With the dollar overwhelming the last of the commodity currencies, it increases the likelihood of further selling pressure for raw materials

Up until recently, commodities have been relatively immune to U.S. dollar strength. However, with the CAD rolling over and gold breaking down, commodities may have to contend with an influx of selling pressure over the coming weeks.

4/ Energy Stocks Hang Tough

Despite growing pressure throughout the equity market and crude oil pressing against its lowest level in over six months, energy stocks continue to hold up better than most.

The chart below highlights the divergence between the SPDR Select Energy Sector ETF (XLE) and crude oil futures.

Source: All Star Charts, with data provided by Optuma

It’s unlikely for energy stocks and crude oil to resolve in different directions. Instead, we could expect one of these charts to catch higher or lower, confirming the other. If energy stocks remain resilient, we could expect a leg higher for crude oil in response.

Originally posted 15th September, 2022

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