Chart Advisor: Late Stage Action – Stocks and bonds end lower, despite weakness in the dollar.

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Thursday, 29th September, 2022

1/ Late Stage Action

2/ Dow Leads Down

3/ New Highs for European Yields

4/ Buffett Puts a Floor in OXY

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/ Late Stage Action

Regardless of direction, extreme volatility is common at turning points. There has been plenty of volatility in the U.S. Dollar Index (DXY) as of late.

Over the past five trading sessions, we’ve seen both the largest single-day gain and loss in DXY since the index last peaked on March 20, 2020.

Source: All Star Charts, with data provided by Optuma

Back then, stocks bottomed the following trading day on March 23, 2020. Does that mean we’ve seen the bottom in stocks this time around? It’s unlikely.

Currency markets are reaching levels of volatility and stress that coincide with significant inflection points. How the dollar reacts over the coming days and weeks could provide valuable insights into the market environment heading into the end of the year.

2/ Dow Leads Down

With the dollar following through to the downside today, we’d expect stocks to follow through to the upside. They did not. Instead, equities were lower across the board as broad selling pressure gripped markets once again.

While the Nasdaq, S&P 500, and small-cap indexes are still battling it out at the June lows, the blue-chip Dow Jones Industrial Average (DJI) is leading the way lower.

Source: All Star Charts, with data provided by Optuma

Not only is the Dow trading at its lowest level since November of 2020, but momentum is confirming the move, registering its lowest reading since the March 2020 bear market.

Notice how the summer lows coincide almost perfectly with the pre-pandemic highs near the 29,600 level. This confluence of interest reinforces the importance of the current level. As long as we remain below it, sellers are in control and we could anticipate the other indexes to follow suit to the downside.

3/ New Highs for European Yields

Yields have been climbing across the board for the past two years. This is as much the case abroad as it is in the U.S.

Benchmark European yields are pressing against new highs.

Source: All Star Charts, with data provided by TradingView

After a clean retest at the 2018 highs, 10-year yields in Germany, the U.K., Spain, and France have accelerated higher. Over the past few weeks, they’ve all taken out their summer highs. These new highs could be taken as strong confirmation for rising yields in the U.S.

The structural uptrend in interest rates around the globe remains clearly intact and suggests yields could keep rising for the foreseeable future.

4/ Buffett Puts a Floor in OXY

Last night, Berkshire Hathaway filed its latest Form 4 statement, revealing yet another increase in its ownership share of Occidental Petroleum (OXY). Including the firm’s warrants, they now own roughly 30% of outstanding shares.

Source: All Star Charts, with data provided by Optuma

Over the past few months, Berkshire has purchased additional shares of OXY only when the share price fell below $60. This has occurred ever since Berkshire established a position in OXY in the first quarter of this year. Since June, Berkshire has purchased shares of OXY every time the stock fell below this key level, putting a floor in the share price on each occasion.

Just last month, Berkshire received FERC approval to purchase up to 50% of the company’s outstanding shares. We could expect Berkshire to continue supporting OXY stock at the key $60 level.

Originally posted 29th September, 2022

Disclosure: Investopedia 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: 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.