Chart Advisor: Big Breakdowns Add Up

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By J.C. Parets & All Star Charts

Thursday, 30th June, 2022

1/ Big Breakdowns Add Up

2/ Another One Bites the Dust

3/ Sentiment Is Down in the Dumps

4/ Interest Rates Roll

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1/ Big Breakdowns Add Up

Bitcoin and the Russell 2000 broke below key levels today, joining the growing list of critical breakdowns. These charts are excellent examples of the damage that’s already taken place.

We lost semiconductors yesterday. Materials went last week, along with copper and the Copper/Gold ratio. And the week before that, banks broke down.

Source: All Star Charts, with data provided by Optuma

The fresh downside resolutions stacking up are all signs of a bear market.

After seeing these two go today, we could anticipate increased volatility and another leg lower for risk assets.

2/ Another One Bites the Dust

We continue to see weakness expand in different areas of the market as more and more assets resolve lower from distribution patterns. 

Big tech and a swath of blue chip names have fallen victim to the selling pressure in recent weeks and months. And now we’re seeing commodity-related stocks suffer a similar fate.

This week, gold miners (GDX) plunged below a critical support area, posting new 52-week lows.

Source: All Star Charts, with data provided by Optuma

The fact that these defensive stocks have not been able to catch a bid speaks to broad risk aversion and the vulnerability of the overall market. As long as this breakdown remains intact, we could anticipate a new leg lower for these shiny metals stocks.

3/ Sentiment Is Down in the Dumps

We’ve had more bears than bulls for nine straight weeks on the Investor Intelligence survey. That’s the longest streak since the global financial crisis.

That statement isn’t meant as hyperbole, and we aren’t making any comparisons to 2008-2009 (though comparisons can be made).

Source: All Star Charts

Rather, it’s just another data point that illustrates that we are in a bear market. Price and momentum have made it abundantly clear that the bears are in control.

The first half of 2022 was the worst for the S&P 500 since 1970, and the sentiment data shows investors are feeling it.

4/ Interest Rates Roll

The U.S. 10-year yield is breaking to fresh lows today, slipping back below 3.00%. This comes as no surprise given the numerous intermarket signals suggesting a decline in the U.S. benchmark rate.

Both copper and the Copper/Gold ratio resolved lower from their year-long ranges. Banks and other cyclical areas of the market that benefit from rising rates are under pressure. And today, the five-year breakeven inflation rate broke to fresh six-month lows.

Source: All Star Charts, with data provided by TradingView

With inflation showing few signs of cooling, and yields rolling over, the conversation surrounding inflation is migrating toward concerns about a potential recession. If rates continue to fall, risk assets could continue to suffer, as bonds catch a bid.

Originally posted 30th June, 2022

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