By J.C. Parets & All Star Charts
Monday, 24th July, 2023
1/ Tech Corrects
2/ It’s Now or Never for Energy
3/ Bitcoin Breaks Down
4/ Gold Miners Hit a Potential Floor
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1/ Tech Corrects
Tech stocks (as represented by the Nasdaq 100) are coming off their best first half in history. But perhaps the rally is due for a healthy pause.
After breaking to fresh all-time highs last week, the Technology Sector ETF (XLK) is pulling back below its former 2022 highs.
Notice that the 14-period relative strength index (RSI) posted a bearish momentum divergence as price broke to new all-time highs. The waning momentum indicates that the bulls are tired and in need of breather.
Honestly, we couldn’t think of a better place for tech to digest recent gains than former all-time highs.
It should not come as a surprise if we see continued corrective action for tech and the growth-heavy indexes in the coming weeks. Rather, investors should welcome the pause after tech’s recent sprint.
2/ It’s Now or Never for Energy
It’s time for energy to catch a relative bid versus tech, especially as growth stocks take a breather.
In fact, energy vs. tech could be the most important intermarket relationship during the second half of 2023.
A new secular trend favoring value-oriented stocks, outperformance overseas, and even the commodity supercycle all hinge on whether energy trends higher relative to tech.
And the energy sector (XLE) finds itself at a logical level of support vs. technology stocks (XLK), highlighted by a key retracement level and a shelf of former highs.
If energy resolves higher on relative terms, the rising rate environment will likely persist, and cyclical assets should benefit the most.
On the flip side, it’s likely back to business as usual with tech and disinflation at the helm if the XLE/XLK ratio continues to fall.
Either way, broad market implications will follow this key intermarket ratio’s resolution.
3/ Bitcoin Breaks Down
Bitcoin (BTC/USD) has been chopping sideways for over a month as bulls grapple with the $31,000 resistance level.
That all changed today.
Sellers showed up, driving price below the lower bounds of the range. We’ve certainly witnessed it before.
Typically, these short-term patterns tend to resolve in the direction of the underlying trend (which is higher in this case). When they do not, it’s a sign that the trend is starting to wear out and that a reversal could be underway.
In addition, momentum has been waning. Not only is there a bearish divergence in place, but momentum couldn’t even reach overbought to confirm the latest high.
We could see further downside pressure and at the very least a pause in the uptrend as long as BTC trades below its prior range.
On the other hand, Bitcoin prices could rip higher if bulls reclaim those former lows.
4/ Gold Miners Hit a Potential Floor
When assets climb within strong uptrends, they tend to outperform their alternatives.
It’s called relative strength. And it’s one of the best tools we utilize.
So while the media will likely focus on the FOMC meeting and the Fed’s forward guidance this week, we’ll monitor price on absolute and relative terms instead.
The Gold Miners ETF (GDX) versus the S&P 500 ETF (SPY) sits atop our list when it comes to precious metals:
Notice that the GDX-to-SPY ratio ripped higher during gold’s rally in 2016 and 2019-2020. We could see similar relative strength from GDX versus the broader market if and when gold breaks out.
The shelf of former lows marks a logical place for gold miners to assume a leadership role.
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Originally posted 24th July 2023
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