Chart Advisor: Markets Brace for CPI Print

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Tuesday, 9th may, 2023

1/ Alphabet Could Be Poised to Break Out

2/ Vegas, Baby

3/ Smart Money Bets on a Weaker Dollar

4/ Cocoa Breaks Out

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/ Alphabet Could Be Poised to Break Out

Google parent company Alphabet (GOOGL) is the third largest stock in the world, behind only Microsoft (MSFT) and Apple (AAPL). Given its heavy weightings and influence on the major U.S. averages, we’re always paying close attention to this technology behemoth.

The stock has been working on a constructive rounding bottom reversal pattern since late last year.

As you can see, price is pressing against the range’s upper bounds for the third time in the past four months.

Source: All Star Charts, with data provided by Optuma

Our line in the sand lies at $108—if the stock moves above that key level, the path of least resistance would be a move higher.

If and when GOOGL breaks out, it would represent a significant feather in the hat for the overall stock market, particularly for the communications sector and growth more broadly.

2/ Vegas, Baby

Although U.S. averages continue to chop sideways, some areas remain resilient. This is particularly true for the VanEck Gaming ETF (BJK).

As you can see, BJK broke out from a basing pattern after consolidating constructively for over a year. It is now holding above a critical polarity zone of $45.

Source: All Star Charts, with data provided by Optuma

Notice that momentum has remained in a bullish regime, hitting overbought conditions on multiple occasions since late last year, adding conviction to the recent breakout.

As long as this breakout remains intact, this group of stocks could continue trending upwards.

3/ Smart Money Bets on a Weaker Dollar

The U.S. Dollar Index (DXY) is clinging to the 100 level, refusing to let go despite new 52-week highs for the British pound and a steady rise in the euro.

It might sound like more of the same, but we were struck over the weekend by the resemblance between the commercial positioning in gold and the U.S. dollar index (DXY).

Check out the dual-pane chart with DXY on top and the commercial or smart money position in gold in the lower pane:

Source: All Star Charts, with data provided by Optuma

The strong positive correlation between these two charts makes sense. Smart money buys gold as the dollar rises.

Remember, a strong dollar weighs heavily on the price of gold and other precious metals. Gold goes on sale as the dollar strengthens, and commercials take advantage of the bargain prices.

Unfortunately, the charts lack a clear divergence to clue us in to the next directional move. But the relationship still offers plenty of insight.

Commercial hedgers’ attitudes toward gold suggest the potential for a falling dollar.

4/ Cocoa Breaks Out

Commodity contracts continue to move higher.

Cocoa futures present a prime example, completing a five-year base today.

Perhaps the breakout hasn’t been the cleanest. But bulls have taken control, posting fresh six-year highs. Here’s a daily chart of cocoa futures:

Source: All Star Charts, with data provided by Optuma

We are watching to see if momentum confirms the breakout in the form of a 14-day relative strength index (RSI) reading greater than 70 now that buyers have driven price above a critical former resistance level.

A bullish momentum print above 70 would suggest that the bulls are in full control, increasing the likelihood of a sustained uptrend.

Originally posted 9th May 2023

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