By J.C. Parets & All Star Charts
1/ House of Mouse-Trap
2/ Short-Duration Bonds Creep Lower
3/ DXY Thrusts Higher
4/ Cotton Coils
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/ House of Mouse-Trap
It has been a rough couple of years for the House of Mouse. American entertainment and media conglomerate Disney (DIS) is now about 60% off its highs from March 2021. This represents a loss of over $200 billion in market cap for the storied Dow component.
With more and more negative headlines rolling in by the day, the real question for DIS investors is where do we go from here?
When we look at a zoomed-out chart, it reveals a clear level of interest at current prices as DIS has found support here several times already.
These multi-year lows do not just represent the breakdown level of a massive distribution pattern. They also happen to coincide with the 62% retracement of the advance off the financial crisis bottom.
Whenever this much of a prior advance is given back, odds favor a full retracement. In other words, a decisive breakdown here could mean that the selloff for Disney is just getting started.
2/ Short-Duration Bonds Creep Lower
At the beginning of the year, it appeared time to bring bonds back into the fold as U.S. Treasuries printed fresh six-month highs.
That bullish outlook was short-lived.
Fast forward to today, and the structural downtrend for bonds remains intact. And those false breakouts last spring have led to fresh breakdowns heading into the fall.
Here’s the two-year Treasury note completing a bearish continuation pattern:
The momentum profile alone reveals that sellers hold control over this market, with two oversold readings since May. We’ll likely witness a third on a valid breakdown below the March pivot low.
The 10- and 30-year futures have already undercut their respective March pivot lows.
As long as they trade below those former lows, U.S. Treasuries represent downside risk.
3/ DXY Thrusts Higher
The U.S. Dollar Index (DXY) violated a year-to-date downtrend line yesterday, ripping higher.
In fact, higher has been the trend ever since DXY posted a failed breakdown last month.
Check out the number of consecutive up-weeks in the lower pane of the U.S. Dollar Index chart:
DXY has finished in the green for six consecutive weeks and counting.
Notice that readings of similar magnitude have led to further strength during the past decade. These outliers also tend to come in pairs—initial and secondary thrusts.
Perhaps investors will be forced to contend with a strengthening dollar in the coming months and quarters.
4/ Cotton Coils
Commodity contracts continue to catch higher. And cotton futures demand our attention.
We’ve kept a close eye on this commodity since January.
Check out the weekly continuation chart of cotton futures:
Buyers began challenging a critical retracement level at approximately $89 to open the year. And they continue to do so, slowly absorbing overhead supply as momentum steadily improves.
Prolonged periods of contraction often lead to explosive expansions in price. Cotton is in the midst of the contraction phase.
A decisive upside resolution above former resistance could kick off the next leg higher—a potentially expansive one.
—
Originally posted 25th August 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.
Disclosure: Forex
There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.
Disclosure: Futures Trading
Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.
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.