Chart Advisor: Where’s the Bearish Momentum? – Despite recent selloffs, major indexes are not reaching oversold conditions.

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Tuesday, 20th September, 2022

1/ Where’s the Bearish Momentum?

2/ The ROOF Is on Fire

3/ Can’t Tank the Tankers

4/ Dollar & Rates

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1/ Where’s the Bearish Momentum?

Despite recent selloffs, major indexes including the S&P 500 are not reaching oversold conditions, defined as a daily RSI-14 reading below 30.

The chart below also shows this happening at the individual component level. The indicator in the lower panel shows the average momentum reading for the roughly 2,800 stocks traded on the NYSE.

Source: All Star Charts, with data provided by Optuma

Not only did we just experience one of the highest readings in years at the August high, momentum hasn’t been able to breach the 40 level throughout the recent selloff. You can even see a bullish momentum divergence forming, in which RSI is making higher lows while price makes lower lows.

It’s constructive to see RSI refusing to reach new lows, considering that markets are coming off their most overbought reading in over a year.

2/ The ROOF Is on Fire

Until the past week or two, new lows were hard to come by. This was especially true at the sector and index level, as even the weakest groups were refusing to break down.

Recent selling pressure has changed that, and the list of new lows is slowly growing again. After today, we can add small-cap real estate (ROOF) to that list, along with communications, social media, and other cycle laggards.

Source: All Star Charts, with data provided by Optuma

The chart above shows ROOF making new lows after an unsuccessful retest of the breakdown level from its recent topping pattern. While the summer rally brought prices right back to their pivot lows from last year, sellers stepped in at this logical level and have been in control ever since.

3/ Can’t Tank the Tankers

Energy stocks remain resilient, despite the recent downside volatility in the energy space. One group that continues to stand out is the oil tankers.

Below, we’ve created an equal-weight custom index of six of the largest oil tanker stocks listed on U.S. exchanges.

Source: All Star Charts, with data provided by Optuma

As you can see, the index has moved in a nearly vertical line higher over the past few months, completing a structural trend reversal. Not many industry groups appear this strong right now. As long as price remains above its 2020 highs, the trajectory for this leadership group could be to the upside.

4/ Dollar & Rates

Two of the most important trends of 2022 remain intact: the rising dollar and interest rates. Both show no signs of slowing down.

The dual-pane chart below highlights these uptrends as both break to fresh highs today. The U.S. Dollar Index (DXY) is printing its highest level in twenty years, while the yield on the 10-year Treasury note breached levels not seen since the spring of 2011.

Source: All Star Charts, with data provided by Optuma

This is not the type of price action stock market bulls would want to see. It could imply further headwinds for risk assets in the form of dollar strength, in addition to downside pressure on bonds and other long-duration assets from rising rates.

The dollar and interest rates rising in tandem could increase selling pressure on both of these major asset classes, and risk assets more broadly, leaving us with an environment where few areas are unscathed by the bears.

Originally posted 20th September, 2022

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