Chart Advisor: Interest Rates Hold

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Wednesday, 3rd August, 2022

1/ Interest Rates Hold

2/ Will Bulls Take Charge?

3/ International Stocks Revisit Historical Levels

4/ Solar Hits Its Stride

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/ Interest Rates Hold

U.S. treasury yields remain trendless as the market tries to price in the next major directional move in rates.

The 30- and five-year yields have held key support levels in recent sessions. And the 10-year yield has pulled back within its prior range after a potential failed breakdown.

Source: All Star Charts, with data provided by Optuma

Whether these levels hold in the coming weeks could have broad market implications. Cyclical sectors and commodities could benefit if and when rates continue to trend higher, while growth and long-duration assets would most likely perform the best if yields decline. 

2/ Will Bulls Take Charge?

As U.S. equities rally, we are seeing more and more indexes challenge critical levels of interest.

For instance, the S&P 500 (SPX) broke support and completed a top this spring, followed by a sharp decline. But after last week’s bounce, it now tests that critical breakdown level from below.

Source: All Star Charts, with data provided by Optuma

This begs the question of whether this is a rebirth of a new bull run or a mean reversion within the context of a bear market.

Regardless, the 4,150 level would be the line in the sand for the S&P 500. If price can reclaim this crucial shelf of former lows, it would be an encouraging signal for stocks and risk assets. However, if price is rejected here, it might be easier to make a bearish argument on stocks more broadly.

3/ International Stocks Revisit Historical Levels

Stocks outside of the U.S. have endured severe damage over the past year. As a result, we have seen a growing number of international indexes flirt with and even violate critical levels of support. The chart below tells the story.

Source: All Star Charts, with data provided by Optuma

On the one hand, the MSCI Netherlands ETF (EWN) has successfully held above its pre-financial crisis highs, while the MSCI Canada ETF (EWC) is trying to hook higher and repair the damage after violating its respective former highs.

Bulls want to see prices dig in here and make a sustained upside resolution. However, if they turn lower, it would be a bearish development for global equities.

4/ Solar Hits Its Stride

Positive developments keep rolling in for the stock market. We’ve seen a breadth thrust in the percentage of stocks making 20-day highs. Some of the worst stocks have stopped going down, while some growth names are printing three-month highs. And solar stocks are back in favor.

Solar is a risk-on sub-industry group of the energy sector. It’s a great blend of growth and value. But as the chart below shows, it tends to trade more with the former.

Source: All Star Charts, with data provided by Optuma

Solar peaked relative to the energy sector around the same time the Nasdaq stopped going up and has taken a similar trajectory as growth.

Now, the Solar ETF (TAN) is breaking to fresh year-to-date highs versus the Energy Sector ETF (XLE). The outperformance from TAN not only suggests a risk-on tone within energy, but also across the broader market. If solar is showing signs of strength, we would imagine that some of the worst performers of 2022 could be beginning to catch a bid.

Originally posted 3rd August, 2022

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.