By J.C. Parets & All Star Charts
Tuesday, 25th July, 2023
1/ European Banks Hit New 52-week Highs
2/ Chinese Stocks Hold the Line
3/ Energy Contracts Reclaim 2018 Peak
4/ Polarity 101: Canadian Style
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1/ European Banks Hit New 52-week Highs
The European Financials Index is one of the most critical groups for gauging risk appetite and overall market health.
And these stocks are sending a message to those investors willing to listen that “all’s clear.”
As you can see, buyers took control after carving out a constructive consolidation below overhead supply and reclaimed a critical level of interest:
Not only is price surpassing its year-to-date highs, but it’s also threatening to close the week at its highest level in a year.
We find it difficult to entertain a bearish outlook for equities when some of the worst stocks in the world not only refuse to go down but are printing new highs.
As long as these fresh highs hold, our bias points up and to the right for European financials and stocks worldwide.
2/ Chinese Stocks Hold the Line
Chinese stocks have gone relatively unnoticed this year while continuing to show constructive signs of a potential bottom.
The China Internet ETF (KWEB) stopped falling in October last year, almost immediately reclaiming a critical shelf of former lows.
Price remains above this critical area as we move into the second half of 2023:
The $26.50 level marks our line in the sand for KWEB. Our bias is to the upside for these stocks above that polarity zone.
Resilience among Chinese internet names also broadly speaks to Chinese equities’ health and signifies a bullish development for risk assets around the globe.
3/ Energy Contracts Reclaim 2018 Peak
Energy has taken a leadership role in recent weeks. But not only are energy contracts leading the commodity space—they’re also breaking back above their prior-cycle peak from 2018.
Those key former highs that marked the top in global risk assets in 2018 apply to equities and commodities.
Our equal-weight energy index (crude oil, gasoline, heating oil, and natural gas) provides an excellent example as it posts a potential bull hook:
We can’t present a bearish energy thesis if these contracts are trading above their prior-cycle highs. And if this is an actual failed move or “bull hook,” we would expect a swift rally in the coming weeks.
It’s still messy in the near term as we wait for upside follow-through.
Nevertheless, our outlook has shifted from giving energy the benefit of the doubt to identifying the best vehicles and strategies to profit from a possible next leg higher in this cyclical value-oriented sector.
4/ Polarity 101: Canadian Style
Don’t sleep on Canadian equities, especially as the energy market heats up.
The oil services industry may present some of the best opportunities within the U.S. stock market. But Canada is calling our name when we shift our focus to country-specific exchange-traded funds (ETFs).
Check out the MSCI Canada ETF (EWC) challenging a crucial polarity zone:
Cyclical value-oriented stocks primarily compose EWC. (Financials and energy comprise more than half of the ETF.)
We imagine that EWC could directly benefit from a sustained rally in energy and persistently elevated rates. And old economy stocks will likely be in vogue if and when buyers drive price back above this crucial area of former-resistance-turned-support.
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Originally posted 25th July 2023
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