Chart Advisor: A Rocky Start for Stocks – Stocks are mostly lower as the dollar surges to start the year.

By J.C. Parets & All Star Charts

Tuesday, 3rd January, 2023

1/ Strong Seasonal Tailwinds for DXY

2/ Gold Bests Bonds

3/ Small Over Large for Growth Stocks

4/ Still a Bear Market for BTC

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1/ Strong Seasonal Tailwinds for DXY

Today’s broad U.S. dollar rally shouldn’t come as a surprise. From a seasonal perspective, January represents the strongest month for the USD. February and March also tend to be favorable for the greenback. Here is the historical performance of the U.S. Dollar Index (DXY) broken down by month:

Source: All Star Charts, with data provided by Optuma

The dollar is entering its best three-month stretch of the year, historically. But this doesn’t mean that the dollar is guaranteed to rise.

Instead, seasonality acts as a roadmap, providing the context for a particular market by observing past behavior. It’s especially important to understand the seasonal tailwinds and headwinds for any given market at potential inflection points. As we’ve written before, the DXY is testing a logical area of resistance. How it responds to those levels and whether it respects its seasonality could provide valuable information for the year ahead.

2/ Gold Bests Bonds

Assets in strong uptrends don’t just do well on an absolute basis. They also tend to outperform their alternatives.

We expect no difference from gold if it breaks to fresh all-time highs. That means gold is completing a massive base relative to bonds.

Source: All Star Charts, with data provided by Optuma

The gold ETF (GLD) versus long-duration U.S. Treasury Bond ETF (TLT) ratio is breaking out of a decade-long bottoming formation that appears similar to an absolute price chart of gold.

A sustained upside resolution in this key intermarket ratio is at the top of our checklist for the next structural uptrend in gold. Any breakout in gold on an absolute basis could be considered suspect if this breakout relative to bonds fails to hold. So far, precious metals continue to exhibit strength on absolute and relative terms as gold bugs come out of the woodwork.

3/ Small Over Large for Growth Stocks

When it comes to growth stocks these days, not all are created equal. While mega-cap growth and tech names remain under serious selling pressure with many making new lows, many of their small-cap counterparts bottomed last summer and have been carving out bottoms ever since. The Invesco Small Cap Technology ETF (PSCT), shown relative to the Vanguard Mega Cap Growth ETF (MGK) in the chart below, provides a great example of an index of growth stocks that is showing resilience.

Source: All Star Charts, with data provided by Optuma

While PSCT has pulled back in recent weeks, unlike large-cap growth indexes, it is nowhere near its pivot lows. This outperformance is also illustrated by the ramp up in the ratio chart, above. With PSCT challenging to break out from a reversal pattern to fresh multi-year highs versus MGK, this trend may just be getting started. If we get a valid upside resolution in PSCT/MGK, it could foreshadow further leadership from smaller growth stocks for the foreseeable future.

4/ Still a Bear Market for BTC

When it comes to cryptocurrencies, Bitcoin closed in the red every quarter of last year. ThWhen it comes to cryptocurrencies, Bitcoin closed in the red every quarter of last year. That’s the longest consecutive tally of quarterly losses in Bitcoin’s price’s the longest consecutive tally of quarterly losses in Bitcoin’s price history.

Source: All Star Charts, with data provided by Optuma

This tells us that the bear market for Bitcoin is still alive and well. Whether or not it can break this trend here and find a bottom, as it did following past losing streaks, is yet to be seen. Price is showing no signs of it just yet.

Originally posted 3rd January 2023

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