Chart Advisor: Restaurants Break Out

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Thursday, 27th April, 2023

1/ Bearish Calls for Small Caps

2/ Restaurants Break Out

3/ Muni Bond Base

4/ Crude Oil Fills the Gap

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/ Bearish Calls for Small Caps

In yesterday’s note, we discussed the increasingly vulnerable position that small-cap stocks are in. With the Russell 2000 Index (IWM) threatening to fall below its prior-cycle highs from 2018 for the fifth time in less than a year, sellers may be ready to take control.

Relative trends are a valuable supplement for analyzing the absolute trend for a given asset. Here is what that looks like for small caps:

Source: All Star Charts, with data provided by Optuma

As shown above, the Russell 2000 vs. Russell 1000 ratio plunged to its lowest level in over two decades today. Broad-based indexes like these offer some of the best representations of stocks categorized by market cap, as they are the most comprehensive.

If these new relative lows in small caps versus their large-cap peers hold, it could support a downside resolution in the small-cap Russell 2000 Index on absolute terms. This would be a very bearish development. With the Russell 2000 testing a shelf of pivot lows now, we could have our answer soon.

2/ Restaurants Break Out

Although U.S. averages continue to chop sideways, some areas remain resilient. This is particularly true for the Dow Jones Restaurants & Bars Index as it reaches new all-time highs.

As you can see, the index is breaking out from a basing pattern after consolidating constructively for over a year:

Source: All Star Charts, with data provided by Optuma

Buyers were able to absorb all the overhead supply and make a decisive upside resolution. As long as this breakout remains intact, we could expect this group of stocks to outperform over the foreseeable future.

3/ Muni Bond Base

Investors recently sold off equities in large quantities and ran to the safety of U.S. Treasurys as the banking crisis unfolded.

It’s not just U.S. Treasurys, as all varieties of bonds have rallied. Here is the National Muni Bond ETF (MUB), a proxy for the performance of municipal bonds:

Source: All Star Charts, with data provided by Optuma

MUB is carving out a year-long base below a well-defined former resistance level. The buyer’s resolve becomes stronger with each additional test of overhead supply, increasing the likelihood of an upside resolution.

If and when MUB breaks out to fresh 52-week highs, bonds in general could catch higher along with other long-duration assets.

4/ Crude Oil Fills the Gap

Bears are in control of crude oil futures.

Notice the bulls failed to drive price above a key resistance level last week. And yesterday, price slid, closing a bullish gap higher from earlier in the month:

Source: All Star Charts, with data provided by Optuma

While the trend has been mostly sideways over the past six months, the bulls are now clearly on the back foot as the 14-day RSI hasn’t registered an overbought reading in over a year. That’s not a characteristic of an uptrend.

With bears in control, our attention now turns to potential near-term support levels.

Originally posted 27th April 2023

Join the Discussion

Thank you for engaging with IBKR Campus. If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.

Your email address will not be published. Required fields are marked *

Disclosure: Investopedia

Investopedia.com: The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy.  While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Investopedia and is being posted with its permission. The views expressed in this material are solely those of the author and/or Investopedia and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: ETFs

Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: Futures Trading

Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.