Chart Advisor: New Lows for Long-Duration Assets – Despite the bond market being closed, bond funds make new lows to start the week.

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Monday, 10th October, 2022

1/ New Multi-Year Lows for TLT and ARKK

2/ Industrials Are Island Hopping

3/ Global Yields Keep Soaring

4/ Junior Is on His Feet

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1/ New Multi-Year Lows for TLT and ARKK

The bond market was closed for a federal holiday in the U.S., but that didn’t stop the iShares 20+ Year Treasury Bond ETF (TLT) from printing a fresh low. It fell below $100 for the first time since 2011. 

Source: All Star Charts, with data provided by Optuma

Falling bond prices (rising yields) have put pressure on growth stocks and other long-duration assets all year. The ARK Innovation ETF (ARKK) is a perfect example of that relationship. TLT broke its June lows a few weeks ago, and ARKK followed today, closing below its June lows. Seeing new multi-year lows from both of these ETFs is confirmation that these trends could likely continue in the intermediate term.

2/ Industrials Are Island Hopping

This is a close look at the trailing month and a half of price action in the Sector SPDR Industrials ETF (XLI). Industrials have the tightest historic correlation to the major averages in the U.S., so the index is a great tool for confirming the price action of the overall equity market.

And that is exactly what it is doing as industrials just printed a failed reversal pattern, making for an excellent illustration of the choppy and trendless environment we’re in.

Source: All Star Charts, with data provided by Optuma

Early in the month, XLI launched higher from an island reversal formation. However, there was absolutely no follow-through and the move stalled. Friday, prices gapped right back into their old range, forming yet another island reversal.

With XLI currently sitting around its summer lows, we’re watching the pivot lows around 82.75. If those are taken out, we could be ready for a fresh leg to the downside. And if that’s the case, the major averages might follow. The current setup in the Dow Industrial Average looks almost identical to XLI.

3/ Global Yields Keep Soaring

Rising rates have been a worldwide phenomenon for the last two years as yields have rallied around the globe.

When we look at European benchmark rates, the 10-year yields of Germany, France, and Spain have posted successful retests of their respective June pivot highs.

Source: All Star Charts, with data provided by TradingView

Seeing these former resistance zones successfully turn into support confirms the uptrend in global yields and highlights the resilience of the rising rate environment.

As long as these trends remain intact overseas, we could expect rates to continue moving higher in the U.S. With a handful of benchmark rates around the world taking out their September pivot highs today, the U.S. 10-year might do the same in the coming days.

4/ Junior Is on His Feet

The precious metals space finally begins to show signs of life after barely moving during the past two years. 

Last week, the Junior Gold Miners ETF (GDXJ) printed its largest five-day rate of change since the spring of 2020. Momentum thrusts like this tend to occur in the early stages of sustained rallies.

Source: All Star Charts, with data provided by Optuma

But like breadth thrusts, meaningful upside momentum readings tend to occur in clusters, and require confirmation. Notice the cluster supporting the rally off the April 2020 lows.

Precious metals bulls want to see more explosive upside action, confirming last week’s pop. If and when they get it, gold and silver miners could offer a great opportunity on the long side.

Originally posted 10th October, 2022

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