By J.C. Parets & All Star Charts
Thursday, 4th April, 2023
1/ Financials Flirt With Disaster
2/ Micro Caps Lead the Way Down
3/ Cattle Futures Print New Highs
4/ Gold Challenges Its Former All-Time Highs
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/ Financials Flirt With Disaster
In yesterday’s note, we discussed the importance of the pre-financial crisis highs in the Financial Sector SPDR (XLF). This critical level of interest also acted as resistance in 2018 and early 2020. Bulls are hoping it acts as support over the coming days.
While XLF gives us a good look at what the largest and most important financial institutions in the U.S. and the world are doing, due to its cap-weighted structure, it doesn’t tell us the whole story. For a broader representation of financial stocks’ performance, we tend to use the Invesco Equal-Weight S&P Financials ETF (RYF):
As you can see in the daily candlestick chart above, RYF finds itself at a critical juncture. This ETF slipped to its lowest level in over two years today, despite recapturing about half of its losses throughout the session.
Due to the intraday recovery, RYF was able to close the day above its 2018 highs around 47.50. These former highs were also successfully tested back in March after the first string of bank failures. If bears are able to take control and force a violation of this key support zone, it could warrant a more cautious approach to the overall market. XLF is likely to break down beneath its equivalent level under this scenario.
2/ Micro Caps Lead the Way Down
With U.S. equities under pressure this week, we’re keeping close watch on the cycle’s culprits for leading evidence of further downside.
The weakest areas of the market are generally the first to break down and lead the rest of the market lower. Here is a chart of the Russell Micro-Cap ETF (IWC), representing one of the weakest areas of the market right now:
Price is not only making multi-year lows but is also undercutting its former highs from 2020.
If bears force a downside resolution in micro-cap stocks, we could expect a fresh leg lower for this group. Under this scenario, there’s a high chance that the broader market will also experience heightened selling pressure.
3/ Cattle Futures Print New Highs
Some of the strongest areas of the commodity space are running into logical areas of overhead supply. Cattle futures offer a prime example.
Here are live cattle futures printing all-time highs last month off a key extension level:
The extension level near 175 could indicate potential resistance. Unsurprisingly, sellers have defended that level by driving prices lower in recent sessions.
While there’s nothing more bullish than new all-time highs, prices do not move in a straight line. A period of digestion after the recent rally could be a healthy and constructive development for the next leg higher in cattle futures.
4/ Gold Challenges Its Former All-Time Highs
While cattle futures enter a period of consolidation after an explosive rally, gold could be preparing to break out.
The June contract for gold came within $4 of posting an all-time high today. Notice how price is carving out a two-year base, slowly digesting overhead supply:
This is the opposite of what we witnessed in the live cattle futures chart. Cattle futures are potentially reaching the end of an expansion phase, or run-up in price.
On the flip side, gold futures are nearing the possible end of a lengthy period of contraction or accumulation. All eyes are now on gold futures as gold bugs push toward an upside resolution.
—
Originally posted 4th May 2023
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: 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.
Join The Conversation
If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.