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Chart Advisor: The Won That Got Away

Posted August 31, 2023 at 2:47 am

By J.C. Parets & All Star Charts

1/ Industrials Flip Resistance

2/ Investors Remain on Offense

3/ Always a Bull Market Somewhere

4/ The Won That Got Away

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/ Industrials Flip Resistance

With equity markets following through higher after finding a tradable low last week, the strongest stocks and indexes are already testing key former highs.

At the sector level, industrials just became the first group to reclaim its 2021-2022 highs. Here is a daily chart of the Invesco Equal Weight Industrials ETF (RSPN) hooking back above the breakout level of a multi-year consolidation:

To be clear, we are not cherry-picking the best-looking industrials index here. The large-cap, mid-cap, and small-cap indexes are also back above their old highs and look very similar.

As long as this is the case, industrials are in a league of their own as the only sector to clear overhead supply. We think other leaders such as technology could soon follow if this is a valid breakout for industrials. We’re watching the pivot highs from this summer, as a move above these levels would confirm these upside resolutions.

2/ Investors Remain on Offense

Some of the best information regarding risk appetite comes from the ratio of the Consumer Staples Sector SPDR ETF (XLP) vs. the S&P 500 ETF (SPY). How investors are positioning tells us a lot about their expectations for the future.

When investors are playing defense and worried about the future, we see risk-off groups like staples outperform. That is not what’s taking place today.

This week, XLP/SPY slipped to its lowest level in over a year:

This tells us that money is not rotating toward defensive sectors. If this was going to be a more severe or sustained market correction, we’d expect to see staples outperform the broader market. That’s precisely the opposite of what’s happening.

This kind of intermarket action speaks to a resiliently bullish risk appetite among investors. This supports a structural bullish thesis for stocks.

3/ Always a Bull Market Somewhere

Cocoa futures kicked off the next leg higher yesterday, completing a month-long consolidation.

Yes, commodities continue to press toward fresh highs.

The daily cocoa chart highlights its slow and steady rise since last September:

Cocoa futures have also remained within a bullish momentum regime since early November—another clear bullish data point. 

An overbought reading on the 14-day relative strength index (RSI) will likely follow today’s session, confirming the breakout.

Whether we actively trade cocoa doesn’t matter. Instead, the chart reveals two essential realities for every investor: Raw materials are in a secular uptrend, and there’s always a bull market somewhere.

4/ The Won That Got Away

The U.S. dollar has been puttin’ a hurtin’ on global currencies for over a month.

It’s broken out against the Australian dollar, the New Zealand dollar, and, of course, the Japanese yen.

But the dollar couldn’t manage to get it done regarding the Korean won (KRW). Check out the USD/KRW pair:

The best dollar bulls could manage was an intraday violation of resistance, resulting in a classic whipsaw. Supply overwhelms demand overhead as momentum fails to reach overbought conditions.

At the same time, the U.S. Dollar Index (DXY) is turning lower after finding resistance at a logical level.

Perhaps the USD’s inability to top the won foreshadows more dollar weakness to come.

Originally posted 30th August 2023

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