By J.C. Parets & All Star Charts
1/ Supply Hits the S&P 500
2/ Warren Buffett Keeps Winning
3/ Intermarket Ratios Suggest Lower Yields
4/ It’s Not the Time to Cut Sugar
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/ Supply Hits the S&P 500
It’s been a relatively quiet week for the major U.S. equity averages and individual market sectors. After a solid rebound off the March lows, we’re now seeing prices move sideways as stocks digest gains.
When we look at a chart of the S&P 500 (SPX), it makes sense for this type of price behavior to occur at this level. Here is a daily chart of SPX running into resistance at its pivot highs from February:
This zone near 4,175 corresponds with several price peaks since last year. It acted as support before being violated in the first quarter of 2022. Outside of a few weeks last summer, it has kept a cap on the S&P 500, acting as a clear level of overhead supply.
The more times support or resistance is tested, the more likely it is to break. If we include the failed move from last August, this is now the fourth test of the 4,170 level.
It could only be a matter of time until the bulls absorb all the overhead supply and force an upside resolution. If and when that happens, it would mark the completion of a bearish-to-bullish reversal for one of the most important stock market benchmarks.
2/ Warren Buffett Keeps Winning
When we analyze individual stocks, we always check how the largest and most important components are performing because it gives us insight about the market’s future direction, or at least the direction of cap-weighted major averages.
Today, we’re showcasing Warren Buffett’s Berkshire Hathaway (BRK.B), which just resolved higher from a multi-month base to its highest level in almost a year:
Due to its heavy weighting in the financial sector and broad indexes, as well as the diversified nature of its business holdings, we often treat BRK as its own index. We’ve highlighted $320 as a critical level to watch for. Above it, risk could be to the upside.
Seeing this bellwether stock break out and push toward new highs is constructive for the overall stock market. It also bodes particularly well for financials.
3/ Intermarket Ratios Suggest Lower Yields
Indecisive, rangebound trading persists throughout the bond market.
Like inflation expectations, yields refuse to roll over. We’re already halfway through the second quarter, and the 10-year Treasury yield holds near the same levels it did last June.
Despite this, key intermarket ratios and cyclical assets keep hinting toward lower yields. The ratio chart of the small-cap value ETF (IWN) and small-cap growth ETF (IWO) presents an excellent example:
The IWN/IWO ratio peaked last spring along with most inflationary assets—including commodities—while the 10-year yield went on to make a higher high in late October.
Fast forward to today, and small-cap value stocks are breaking down to fresh 52-week lows relative to their small-cap growth peers. This is not the kind of behavior we would expect to see in a rising interest rate environment.
We can add this ratio to our growing list of charts suggesting lower rates could be on the horizon.
4/ It’s Not the Time to Cut Sugar
Sugar broke to fresh decade highs today as the uptrend persists for one of the sweetest raw materials on the global commodity market.
We’ve highlighted this chart numerous times over the past six months. Tight consolidations with bullish momentum profiles tend to produce significant rallies, as has been the case with sugar futures recently.
But today, our focus is the completion of a bull flag:
These short-term continuation patterns tend to last no more than a few weeks and often result in explosive upside resolutions. That’s what we witnessed during today’s session.
If the pattern turns out to be a half-mast flag, then a logical target could be applied by measuring the preceding rally to the peak of the flag and applying that distance to the pivot low of the pattern upward.
Regardless of the price target, the path of least resistance could be even higher for sugar.
—
Originally posted 20th April 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: 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.
Join The Conversation
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.