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

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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

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