By J.C. Parets & All Star Charts
Thursday, 22nd June, 2023
1/ HACK Needs More Time
2/ Industrials Set the Tone
3/ Steel Stocks Look Constructive
4/ Commodities Are Alive and Well
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1/ HACK Needs More Time
Although the technology sector has been ripping higher this year, some groups still have work to do.
This is the case of Prime Cyber Security ETF (HACK):
As you can see, buyers attempted to complete a year-long base last week but were immediately rejected as sellers showed up at the same level as last summer.
This polarity zone at approximately $51.50 is the line in the sand for HACK. Above that level, the path of least resistance would be to the upside. It’s likely to remain a range-bound mess until then.
2/ Industrials Set the Tone
Industrial stocks are considered an excellent instrument to measure market health due to their strongest correlation to the major U.S. averages. When they perform well, so does the market.
The chart below shows the Equal Weight Industrials (RSPN) vs. Equal Weight S&P 500 (RSP) reaching new all-time highs.
After absolutely no progress for over a decade, the ratio is emerging from an extensive base, increasing the leadership role for industrial stocks.
As long as the ratio holds above the shelf of former highs, we will likely see continued outperformance from industrials. This scenario could bode well for a healthy market in the foreseeable future.
3/ Steel Stocks Look Constructive
Steel stocks are likely to enjoy a healthy bid if the industrial sector maintains leadership.
And if steel stocks are catching higher, we have to imagine commodities and global equities are also faring well.
Here’s the Steel ETF (SLX) carving out a potential multi-year base in the form of an inverted head and shoulders:
These formations often act as reversal patterns but can resolve in the direction of an ongoing trend.
If and when SLX finally breaks out, it would support an increase in risk appetite and an expansion in market breadth.
4/ Commodities Are Alive and Well
The commodity supercycle will not be televised.
That doesn’t mean we should plug in, turn on, and cop out. Or that we should accept the notion that commodities are dead.
Instead, let’s focus on the charts. Check out the S&P 500 versus the CRB Index, a simple stocks/commodities ratio:
It’s been commodities over stocks since crude traded below zero in the spring of 2020. Yes, the correction favoring stocks off the 2022 lows has been significant.
But it’s retreating from a logical confluence of potential resistance—a multi-year downtrend line and a key retracement level.
Let’s call the recent correction a “commercial interruption.”
Remember, booms and busts are what commodity contracts do. More precisely, that’s how the supply and demand dynamic unfolds for raw materials: escalator up! elevator down! and repeat.
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Originally posted 22nd June 2023
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