By J.C. Parets & All Star Charts
Friday, 21st July, 2023
1/ The Dollar Pulls Back
2/ The Median Stock Runs Into Resistance
3/ New Highs for the Machines
4/ Will Crude Oil Follow?
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1/ The Dollar Pulls Back
King dollar might have fallen to fresh 52-week lows, but it’s not going down without a fight.
The U.S. Dollar Index (DXY) is trading back at a critical shelf of former lows as markets head into Friday’s close.
A pullback in price can result in one of two ways: a standard retest followed by further weakness, or a failed breakdown resulting in a swift upside resolution.
Price can chop sideways, of course, but stock market bulls the world over have their fingers crossed that it’s not a failed breakdown.
If the dollar does in fact rip higher, we could see an environment where the major U.S. stock indexes are under increased selling pressure—especially those indexes heavily weighted toward the tech and growth sectors.
2/ The Median Stock Runs Into Resistance
When it comes to major indices, the Value Line Geometric Index (VLG) represents the median stock performance and is an excellent representation of how the broader market is performing.
As you can see, the price is running into resistance at its 2018 highs, which coincides with the pivot highs from last year.
This area of 595 is a logical level for sellers to show up and halt recent advances, just as last year.
It would not be surprising to see some pause at current levels as buyers absorb supply at this critical resistance level.
Stock market bulls will have plenty to celebrate if and when buyers reclaim this key polarity zone.
3/ New Highs for the Machines
Industrials have been one of the best-performing sectors on an equal basis since the list of new 52-week lows peaked in June of last year.
One particular index that catches our eye this week is the Dow Jones Industrial Machinery Index:
As you can see, after a year of carving out a constructive base, price broke higher, reaching new all-time highs.
As long as these new highs stick, industrial machinery stocks and individual names within this space could have upside potential.
Bigger picture: How bad can things be if industrial machinery is breaking out? Not bad.
4/ Will Crude Oil Follow?
Talk of disinflation is back in vogue. Yet the bond market fails to register the noise as rates remain elevated.
Interestingly, our petro-currency index—an equal-weight index of the Mexican peso (MXN), Brazilian real (BRL), Norwegian krone (NOK), and Canadian dollar (CAD)—is running back to its 2022 highs.
Based on the overlay chart of our petro-currency index and crude oil futures, we have to ask: Will crude oil follow?
We highlighted the widening divergence between these charts in early June. Crude oil futures have rallied more than 10% since. And the FX market continues to lead “black gold” to the upside.
Buying tech stocks might feel like a slam dunk right now. But perhaps energy and crude oil deserve more attention.
The FX market thinks so.
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Originally posted 21st July 2023
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