Chart Advisor: Speculative Growth Joins the Party

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Monday, 22nd May, 2023

1/ Speculative Growth Joins the Party

2/ Robotics Stocks Build a Base

3/ Stocks Over Bonds

4/ Mining Stocks Lose Key Support

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/ Speculative Growth Joins the Party

Participation is expanding to even the most speculative of growth stocks. One of our favorite indexes for gauging the behavior of this risk-on group is the ARK Innovation ETF (ARKK).

ARKK had one of its best days of the year today as price reclaimed a key level of interest with authority.

While the rally doesn’t even put us close to the upper bounds of this base like we’re seeing with other technology and growth indexes, it is still an important level. Here’s the daily chart:

Source: All Star Charts, with data provided by Optuma

Whether we anchor a volume-weighted average price (VWAP) from the 52-week high or low, or even the year-to-date high, they all end up around the same place in this $38 to $39 zone. Coincidentally, the long-term moving average is flattening out at the exact same level. We also have a shelf of pivot highs here from March and April.

The bottom line is that the current level represents a major confluence of interest. The fact that price ripped through it with such force can only be interpreted as bullish. As long as today’s move holds, ARKK could head back to its pivot highs and eventually complete this base.

From a risk appetite standpoint, it’s also a positive development to see investors move out on the risk curve and bid up the most speculative growth stocks in the market.

2/ Robotics Stocks Build a Base

We’ve been noting a pattern of more sectors and industries resolving higher from reversal patterns. This is especially true when it comes to tech-related groups.

The Artificial Intelligence and Robotics ETF (ROBT) does a great job of illustrating this theme.

Source: All Star Charts, with data provided by Optuma

As you can see, price is pressing against the upper bound of this base as buyers continue to absorb the overhead supply.

Notice that momentum is in a bullish regime, as the 14-day relative strength index (RSI) hasn’t reached oversold conditions in the past few months, and the 200-day moving average is starting to curl higher. All this is evidence that a change in trend is likely underway.

Under this scenario, we could see breakouts in the strongest AI and robotics stocks.

3/ Stocks Over Bonds

One of our favorite ways to measure risk appetite is through the stocks vs. bonds ratio, as it tells a story of where the alpha is and how market participants are positioning. Bonds represent defense, while stocks represent offense.

Last week, the ratio of the SPDR S&P 500 ETF (SPY) vs. the iShares 20+ Year Treasury Bond ETF (TLT) closed at new all-time highs after emerging from a tight consolidation. Here’s a look:

Source: All Star Charts, with data provided by Optuma

Seeing this ratio reach new highs indicates that the market continues to reward investors for buying equities over U.S. Treasuries. This is a sign of risk-seeking behavior and is a common characteristic of bull markets.

As long as these new highs remain intact, the alpha will likely remain in the stock market, which would favor equities over their alternatives for the foreseeable future.

4/ Mining Stocks Lose Key Support

The bears appear to have found a new home—gold mining stocks.

Silver’s breakdown earlier this month raised the caution flag for the entire precious metals space. 

Less than two weeks later, gold futures and mining stocks are falling under the wrath of increased selling pressure.

Check out the Gold Miners ETF (GDX) undercutting a key polarity zone:

Source: All Star Charts, with data provided by Optuma

Risks are now likely to the downside for these mining names as sellers take control.

While precious metals could be on the cusp of a new secular uptrend, bulls need more time to accumulate these stocks and their associated rocks.

Originally posted 22nd May 2023

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