By J.C. Parets & All Star Charts
Tuesday, 4th October, 2022
1/ The Golden Bear Trap
2/ Confirmation in 63-Day Highs
3/ Energy Hasn’t Broken Out Yet
4/ Volatility Cools in Crypto
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 Golden Bear Trap
Precious metals have come roaring back in recent days. The price of gold is up 6% over the past five sessions, marking its best five-day gain in more than two years. We’re seeing these kinds of short-term momentum thrusts all over the space this week. More importantly, gold reclaimed former support around $1,675, sparking a false move. This would be very constructive for gold bugs.
You know what they say about failed breakdowns: “From failed moves come fast moves in the opposite direction.”
While this might sound like a quaint platitude, there is a lot of market psychology behind failed breakdowns, or bear traps as they’re often called. When price breaks a well-defined support level, like $1,675 for gold, bulls get stopped out and bears pile in short. If price reclaims that key level, the bears could become trapped, and forced to buy-to-cover. At the same time, bulls who had previously been stopped out are more inclined to get back in again. These supply and demand dynamics can cause a spree of buying and lead to a sharp move higher.
2/ Confirmation in 63-Day Highs
With the S&P 500 running into a logical level of support, breadth has been slightly improving as fewer individual stocks are accompanying the index at its recent lows from last week.
With buyers entering the market and the index making fewer lows than it did in June, the odds could be in favor of equities experiencing some mean reversion.
While bulls still have a lot of work to do before we could have conviction that the bottom is in, we could be due for a pause in selling in the short term. The next key piece of information could be a bullish thrust in the 63-day highs as confirmation of the shorter-term thrusts that have taken place since this summer.
3/ Energy Hasn’t Broken Out Yet
Although energy has experienced a strong rally from its pandemic lows, it’s still below overhead supply. This is particularly true at the large-cap index level.
Below is the large-cap energy sector ETF (XLE) being rejected by a shelf of former highs.
It’s no coincidence that these stocks stopped going up at the same level they did in 2007 and 2014. There’s plenty of market memory and overhead supply here.
While it could take time, it wouldn’t be surprising for them to eventually resolve higher from these levels as they have had plenty of time to absorb all the supply. The final resolution could be higher, in the direction of the underlying trend.
4/ Volatility Cools in Crypto
With traditional markets experiencing increased volatility in recent weeks, cryptocurrencies have barely moved.
The chart below shows Bitcoin’s volatility (as measured by the Bollinger Bandwidth indicator in the lower pane) back in the compression zone as prices coil in a tight range above the critical former 2017 highs.
These periods of volatility contraction are often followed by wild moves in either direction that tend to set the tone for the coming weeks and months. This suggests a strong move in BTC could be imminent.
—
Originally posted 4th October, 2022
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: Bitcoin Futures
TRADING IN BITCOIN FUTURES IS ESPECIALLY RISKY AND IS ONLY FOR CLIENTS WITH A HIGH RISK TOLERANCE AND THE FINANCIAL ABILITY TO SUSTAIN LOSSES. More information about the risk of trading Bitcoin products can be found on the IBKR website. If you're new to bitcoin, or futures in general, see Introduction to Bitcoin Futures.
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.
