By J.C. Parets & All Star Charts
Thursday, 18th May, 2023
1/ New Highs for Nasdaq
2/ A Euro Dip Could Spell Trouble for Risk Assets
3/ Japan Stocks Set New Highs
4/ Gold Slices Through Former Support
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1/ New Highs for Nasdaq
The Nasdaq 100 (QQQ) is cruising higher this week as tech and growth stocks continue to dominate the overall market from a leadership perspective.
When we look for confirming evidence for these new highs, the base breakouts in technology and communications sector indexes are top of mind. However, the relative trends are also very much in favor of technology these days.
Here is the Russell 1000 large-cap growth vs. value ratio overlaid with the Nasdaq 100:
Confirmation can come in the form of peer indexes agreeing with price action, overbought momentum readings, relative strength trends, and more. And while the ideal situation would be all of these things in place at once, that just isn’t reality.
Even so, there are few things more bullish than seeing an asset make new highs relative to its peers as it makes new highs on an absolute basis. That’s exactly what we’re seeing from growth stocks right now.
To illustrate this, we’ve included a correlation coefficient between the growth vs. value ratio and the Nasdaq in the lower pane. This relationship is strong throughout history, and we expect it to remain that way. As long as these new highs in growth vs. value are here to stay, the base breakouts in the Nasdaq and other growth indexes will likely be valid resolutions.
2/ A Euro Dip Could Spell Trouble for Risk Assets
The euro continues to slide.
Last week, we turned to the EUR/USD pair for insight as King Dollar caught a bid against a backdrop of broad selling pressure.
The key polarity zone at the 1.08 level held our focus. If the euro were to lose that level, we imagined that further downside pressure lay in store for risk assets.
A week later, the EUR/USD is crossing our line in the sand:
The bearish divergence on the 14-day relative strength index (RSI) proved prescient despite the bullish momentum regime. We’re now monitoring a potential oversold reading of less than 30, which would indicate that bears have resumed control.
If the bears take control of this market, the U.S. Dollar Index (DXY) is likely to print fresh six-month highs above 105. This would come at a cost to global risk assets and precious metals, as selling pressure would likely inundate the market.
3/ Japan Stocks Set New Highs
Since international equities bottomed out last year, they have been rising and resolving higher from accumulation patterns.
The chart below shows the MSCI Japan ETF (EWJ) completing a one-year reversal formation and rallying to new 52-week highs:
Not only is momentum in a bullish regime, adding conviction to the recent breakout, but the 200-day moving average is curling higher, indicating that the trend could be shifting in favor of the bulls.
Seeing stocks in Japan and other countries set new highs is yet another piece of evidence suggesting that the global equity landscape remains strong.
4/ Gold Slices Through Former Support
First silver … now gold!
Last week, gold’s crazy cousin undercut a key polarity zone and potential support level, increasing downside risks. Less than a week later, gold futures are sliding below a similar level marked by the April pivot lows and January pivot highs:
Sellers have come for precious metals, like much of the market. And considering these metals have been one of the few bright spots among commodity contracts, commodity indexes could be the next domino to fall.
On the flip side, gold and other precious metals could post a bullish reversal if rates finally begin to roll over.
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Originally posted 18th May 2023
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