Chart Advisor: Software Stocks Soar

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Wednesday, 15th February, 2023

1/ Buyers Bid Up Software Stocks

2/ Airbnb Takes Flight

3/ Denmark’s Decisive Resolution

4/ USD/JPY Recovers Lost Ground

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/ Buyers Bid Up Software Stocks

Before the major averages turned green later in the day, growth sectors including internet and software stocks were rallying early in the session. This was also the case for other speculative indexes like the ARK Innovation ETF (ARKK) and the Renaissance IPO ETF (IPO).

While phrases like “junk stock rally” or “dash for trash” are being used to describe this price action, it could simply indicate an expansion in participation as investors rotate into the riskiest groups.

Below is the Invesco Software ETF (PSJ), which rallied more than 4% today and reached its highest level since August.

Source: All Star Charts, with data provided by Optuma

Notice how price is now above a 200-day moving average that is flattening and curling higher. Momentum is also in a bullish regime, after the 14-day RSI hit overbought conditions earlier this month, confirming the rally for software stocks.

In a bear market, the strongest groups tend to catch lower to the weakest ones. However, the opposite is true in a bull market, where the weakest groups catch higher to the leaders. That’s exactly what is taking place today as the laggards of the last cycle are showing impressive relative strength.

2/ Airbnb Takes Flight

Shares of Airbnb (ABNB) rallied more than 13% today after the booking company reported better-than-expected fourth-quarter results, released Tuesday after the bell. Not only did the company beat estimates on the top and bottom lines, it also upped guidance and gave a bullish outlook for the future. The stock reacted accordingly, gapping higher above a key level of potential resistance.

Source: All Star Charts, with data provided by Optuma

Notice how price is now above a 200-day moving average that is flattening and curling higher. Momentum is also in a bullish regime, after the 14-day RSI hit overbought conditions earlier this month, confirming the rally for software stocks.

In a bear market, the strongest groups tend to catch lower to the weakest ones. However, the opposite is true in a bull market, where the weakest groups catch higher to the leaders. That’s exactly what is taking place today as the laggards of the last cycle are showing impressive relative strength.

3/ Denmark’s Decisive Resolution

While the U.S. is the world’s largest and most critical market, we use many international benchmarks to gather information about the global environment and investors’ appetite for risk.

Among the European indexes we track regularly, Denmark’s OMX Copenhagen Index stands out as a clear leader:

Source: All Star Charts, with data provided by Optuma

As you can see, the index has been carving out a base for most of 2022. This week, price pierced through the upper bounds of its range, reaching fresh all-time highs.

The fact that a growing number of global indexes are setting fresh highs speaks to risk-seeking behavior and is the latest piece of data that could support a bullish outlook for equities worldwide. In fact, recent price action outside the U.S. is even more bullish than the price action taking place in the U.S. in recent weeks.

4/ USD/JPY Recovers Lost Ground

Despite the U.S. Dollar Index (DXY) hitting fresh one-month highs, it failed to take back the key 104 level.

However, USD/JPY—the second-largest component of DXY, comprising 13.6% of the index—reclaimed a comparable level. Below is a daily chart of the USD/JPY currency pair:

Source: All Star Charts, with data provided by Optuma

It’s printing fresh year-to-date highs, breaking above a pivotal polarity zone, and resolving higher from a multi-month downward-sloping trading channel. The path of least resistance could now be higher over the near term.

This puts dollar bears in a difficult spot as the euro comes under increasing pressure, with the yen now having lost a significant level. These two currencies together comprise more than 70% of the DXY.

Further weakness from these currencies could fuel a significant bounce in DXY over the coming days and weeks.

Originally posted 15th February , 2023

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: Forex

There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.