Chart Advisor: Stocks Repair Damage

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Thursday, 30th March, 2023

1/ New Highs for No Highs

2/ Bitcoins or Dollars?

3/ Archer-Daniels Digs In

4/ The Bigger the Base…

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1/ New Highs for No Highs

The S&P 500 just recorded 310 consecutive days without reaching an all-time high, the longest such streak in a decade.

Although this has been the longest bear market of the past 10 years, when we zoom out, we see two longer streaks without new all-time highs: the aftermath of the dotcom bubble crash and the global financial crisis.

Source: All Star Charts, with data provided by Optuma

This is because the drawdowns in these cycles were much deeper than the current one, and why it took so long for the market to recover to new all-time highs. The deeper the drawdown, the longer it takes to repair the damage.

2/ Bitcoins or Dollars?

The negative correlation between Bitcoin and the U.S. Dollar Index (DXY) remains intact, representing a fundamental piece in our intermarket puzzle.

Below is an overlay chart of Bitcoin and the DXY, going back to 2017:

Source: All Star Charts, with data provided by Optuma

As you can see, when the dollar trends lower, Bitcoin often enjoys strong bull markets. On the flip side, Bitcoin tends to experience selling pressure when the dollar strengthens.

A break below the 2016 and 2020 highs in DXY could be a major buy signal for Bitcoin and cryptocurrency bulls, and could set the stage for a rally in risk assets.

3/ Archer-Daniels Digs In

The resilience of commodity stocks has been a key theme during the trailing twelve months. Energy and steel stocks have held up, even as their underlying commodities have broken down.

We can now add agricultural equities to that list. Below is a stock chart of industry bellwether Archer-Daniels-Midland (ADM) overlaid with the CRB Commodity Index:

Source: All Star Charts, with data provided by Optuma

Despite fresh lows in the CRB Index, ADM is printing a potential higher low. This reveals persistent pockets of strength beyond the prominent energy contracts (such as crude oil) that dominate the CRB Index weighting.

Wheat, corn, cotton, sugar, and cattle futures are all digging in as many grain markets enter a seasonally favorable period. A rally in soft commodity futures could be forthcoming.

4/ The Bigger the Base…

On the topic of agricultural commodities, cocoa futures are carving out a five-year base in the form of a potential ascending triangle:

Source: All Star Charts, with data provided by Optuma

This pattern could carry a bullish bias, as does the bullish momentum regime on the 14-week relative strength index (RSI).

It’s constructive to see cocoa form a base over the trailing five years without hitting an oversold reading. This suggests strong underlying demand and could signal the beginning of an accumulation phase. It also adds to our conviction of a potential upside resolution.

Originally posted 30th March, 2023

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