Chart Advisor: The Big Apple

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

1/ The Big Apple

2/ It’s Not Just Five Stocks

3/ Losing Energy

4/ CCJ Approaches a Key Breakout

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/ The Big Apple

What individual issue do stock market bulls want to see make new highs more than any other? It depends on who you ask, but as most market participants measure the overall “stock market” by cap-weighted indexes such as the Nasdaq and S&P, it goes to reason that bulls would want the largest weighting to perform the best.

Here’s a chart of the largest company in the world and the most heavily weighted component in both indexes:

Source: All Star Charts, with data provided by Optuma

Apple (AAPL) just closed the week at fresh all-time highs on both absolute and relative terms. When we look for bullish chart patterns, one of the things we focus on is leadership. It is a bullish signal to see relative strength confirm breakouts and new highs on absolute terms.

In the case of AAPL, that’s exactly what’s taking place right now. The largest and most important stock in the world is breaking out and making new highs relative to the broader market as it does, which could be a confirmation for a pattern resolution.

2/ It’s Not Just Five Stocks

While mega-cap tech stocks like Apple, Nvidia (NVDA), Meta (META), and Google parent Alphabet (GOOGL) continue to drive gains for the overall market, it is important to have participation from smaller stocks for a sustainable bull run. 

One easy way to check in on the health of the broader market is by analyzing equal-weighted indexes like the one shown below. This is the Nasdaq 100 (QQEW) on an equal-weight basis:

Source: All Star Charts, with data provided by Optuma

If only the five largest stocks were responsible for all the gains at the index level this year, we wouldn’t be looking at an equal-weight index of 100 stocks making new highs. After gaining roughly 25% from its lows last fall, QQEW is in the process of resolving higher from a bearish-to-bullish reversal pattern.

If prices hold these new highs, the path of least resistance may be higher for all tech stocks, not just the largest ones. The line in the sand is just north of $100.

3/ Losing Energy

Both crude oil futures and the SPDR Energy Sector ETF (XLE) peaked in the first half of last year. Over the trailing 12 months, both have trended lower, with crude leading the way. While it is clear that energy is no longer a leadership group, the real question is about how bad the damage is on absolute terms.

Here is a dual-pane chart showing both energy assets zoomed out to the prior cycle:

Source: All Star Charts, with data provided by Optuma

When we look at the current distribution patterns in XLE and crude, it really boils down to two key levels.

We have the 2018 highs, which XLE is still chopping above while crude oil consolidates below its equivalent level. And we also have the pivot lows from earlier this year, which both XLE and crude are currently holding. If these key support levels give way, the primary trend could become lower for the entire energy complex.

4/ CCJ Approaches a Key Breakout

But just as the stock market is a market of stocks, the commodity market is a market of, well, a diverse set of commodities.

So while many high-profile procyclical contracts look poised to break down, more obscure areas are showing strength—such as uranium.

Check out the industry leader Cameco Corporation (CCJ):

Source: All Star Charts, with data provided by Optuma

CCJ rose a “modest” 8.84% yesterday as it closes in on a shelf of former highs.

We can’t dismiss the pockets of strength among commodities simply because the indexes or Dr. Copper look vulnerable. 

In fact, the rotation out of procyclical contracts and into precious metals and more peripheral areas such as uranium could pick up during the second half of 2023.

Originally posted 2nd June 2023

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