By J.C. Parets & All Star Charts
Tuesday, 13th June, 2023
1/ New Resistance for S&P 500
2/ Industrials Knock on the Door
3/ USD/JPY Supports the Nikkei Breakout
4/ Emerging Market Currencies Hit 52-Week Highs
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1/ New Resistance for S&P 500
The S&P 500 Index (SPX) left behind the 4,200 resistance zone earlier this month and has been ripping higher ever since.
However, although the price is reaching new 52-week highs, it is challenging a new critical level of overhead supply:
This area coincides with August highs from last year and the 61.8% retracement of the 2020-2021 bear cycle, making for a confluence of resistance.
If buyers force a decisive breakout above this supply zone, it will be a major feather in the hat for stock market bulls.
2/ Industrials Knock on the Door
When it comes to value-oriented sectors, industrials call our attention as they reach new 52-week highs—regardless of the market-cap scale you look at.
The chart below shows Small Cap Industrials (PSCI) pressing against the upper bounds of a multi-year base as buyers try to take out this level and send prices out of the range to new all-time highs. This is something not too many sectors and industry groups can say right now.
If and when PSCI breaks out of this formation, it wouldn’t be a surprise to see more and more groups follow suit. After all, all-time highs are characteristic of bull markets.
3/ USD/JPY Supports the Nikkei Breakout
A true risk-on event often involves the U.S. dollar (USD) gaining ground against the Japanese yen (JPY).
That has certainly been the case recently, and the overlay chart of the Nikkei 225 and the USD/JPY pair tells the story.
These two markets have a strong tendency to peak and trough together, as the Nikkei and USD/JPY pair have gained roughly 22% and 8% over the trailing three months, respectively.
So while a weaker dollar likely translates into tailwinds for global risk assets, stock market bulls shouldn’t be alarmed by a rising USD/JPY pair.
4/ Emerging Market Currencies Hit 52-Week Highs
Markets are bracing for tomorrow’s Federal Open Market Committee (FOMC) decision—including the dollar.
Let’s call it the knee-jerk before the knee-jerk, with a little help from today’s May Consumer Price Index (CPI) print. But if we turn to emerging market (EM) currencies, we don’t see any sign of hesitation.
Check out our EM Commodity Currency index (equally weighting the Mexican peso, Brazilian real, Chilean peso, and South African rand) posting new 52-week highs after violating a long-term downtrend line at the beginning of the year:
EM currencies are showing impressive strength, indicating broadening dollar weakness. And a weaker dollar bodes well for risk assets—worldwide.
We imagine that burgeoning bull market developments could only intensify if the uptrend in EM commodity currencies persists.
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Originally posted 13th June 2023
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