By J.C. Parets & All Star Charts
Monday, 24th April, 2023
1/ Swiss Market Strength
2/ High Beta Points Lower
3/ Commodity Currencies Fail to Confirm
4/ Platinum Breaks Out
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1/ Swiss Market Strength
As participation continues to expand among European equities, our focus has been on identifying the strongest regions and indexes. Right now, they are mainly overseas.
One of our favorite exercises for finding the strongest international markets is by analyzing international indexes relative to a benchmark.
For example, here is the iShares MSCI Switzerland ETF (EWL) making new all-time highs relative to the All Country World Ex-US Index (ACWX):
After several years of rangebound action on a relative basis, Switzerland is resolving higher versus international equities. ACWX is an excellent index for global equities as it offers exposure to emerging and developed markets, as well as mid-cap stocks.
If these new highs stick in the EWL/ACWX ratio, we could anticipate further outperformance from Switzerland in the future. The new highs on an absolute basis would support an upside resolution on relative terms.
2/ High Beta Points Lower
One of our favorite metrics for gauging risk appetite is the High Beta (SPHB) vs. Low Volatility (SPLV) ratio.
When the ratio is trending higher, it is because investors are favoring riskier stocks over their alternatives. The overall market tends to move in the same direction as this ratio.
However, when the trend points lower, expressing defensive behavior, it’s usually taking place in a bearish environment.
As you can see in the chart above, SPHB/SPLV completed a double-bottom formation back in January. But in the few months since, the trend shifted back to the downside, peaking in February and retreating back to its old range.
As long as this ratio is beneath the breakout level, it would indicate a risk-off tone for the market.
3/ Commodity Currencies Fail to Confirm
Commodity currencies are among the many data points we’re monitoring for a confirmation of broad USD weakness. And like most global currencies, they chop sideways within a tight range.
Here’s a triple-pane chart of the Australian, Canadian, and New Zealand dollars:
All three trade near their July 2022 pivot lows to varying degrees. It’s the same indecisive price action we noted at the start of the year.
The New Zealand dollar stands as the only currency of the bunch holding above its respective lows from last summer.
It would be hard to get behind a U.S. dollar downtrend with conviction until the above currencies reclaim their respective pivot lows and catch higher.
4/ Platinum Breaks Out
First palladium, now platinum?
It doesn’t matter whether you consider Platinum or Palladium true precious metals. The industrious side of the family is chipping in, supporting a new structural uptrend for the entire space.
Platinum completed an inverted head and shoulders pattern last week while posting an overbought reading above 70 on the 14-day RSI.
The uptrends for gold and silver have cooled, but neither metal is under increased selling pressure. Instead, they’re digesting recent gains ahead of the Fed’s next meeting in May.
While the near-term environment might call for patience, it’s bullish to witness platinum break to fresh highs—palladium too—as the industrial side of the precious metal family could be expected to participate throughout a structural uptrend.
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Originally posted 24th April 2023
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