Chart Advisor: Bitcoin Bounces Back

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By J.C. Parets & All Star Charts

Friday, 13th January, 2023

1/ Bitcoin Bounces Back

2/ Equipment and Services Stay Strong

3/ Communications Work on a Reversal

4/ Are Rising Rates in the Rearview?

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/ Bitcoin Bounces Back

Cryptocurrencies have woken up from their long slumber this week as risk appetite expands across a growing list of asset classes.

Bitcoin has risen roughly 14% this week and booked its sixth straight day of gains.

Source: All Star Charts, with data provided by Optuma

Not only is price reclaiming its prior-cycle highs from 2017, but momentum—as measured by the 14-day relative strength index (RSI)—is registering its highest reading in two years. This is evidence that buyers are becoming increasingly aggressive. 

BTC also looks poised to break back above its 200-day moving average (MA) for the first time in over a year. This would put an end to one of the longest streaks of consecutive days below the widely-used long-term trend indicator.

The table in the chart above shows past streaks where the cryptocurrency remained below its 200-day MA for extended periods. Measured this way, only the 2018-2019 period saw a deeper bear market than today. If bulls can take control at this key polarity zone, which represents the long-run average and prior-cycle peak, it could signal the end of the current bear market for the world’s biggest cryptocurrency.

2/ Equipment and Services Stay Strong

One industry that caught our attention this week is oil services, which continues to show leadership among the energy subgroups.

The chart below shows the Oil & Gas Equipment & Services ETF (XES) breaking out to new multi-year highs.

Source: All Star Charts, with data provided by Optuma

If this breakout proves to be a valid one, it could mark the completion of a multi-year base and structural trend reversal. A new uptrend could be underway for this leading industry group.

We’ll be watching oil explorers, producers, and refiners closely in the upcoming weeks to see if they confirm the price action from XES. If they do, a fresh leg up for the entire energy space could be underway.

3/ Communications Work on a Reversal

Not only are market leaders making new highs, we’re also seeing new short-term highs from laggards. When it comes to the weakest sectors during the recent cycle, no group has struggled more than communications. Here is a look at the Large Cap Communications Sector SPDR (XLC), closing the week just shy of fresh four-month highs:

Source: All Star Charts, with data provided by Optuma

Not only is XLC looking to complete a multi-month base, but the pattern is taking place right at the prior-cycle highs from 2018 and 2019. If bulls can take control at this critical level and force an upside resolution, the bias could be higher for this group.

Seeing weekly momentum (measured by the RSI-14) rally back above 50 for the first time in over a year supports these new highs. We’re looking for upside follow-through from XLC over the coming weeks to confirm a valid reversal. The fact that even the weakest stocks have stopped falling and are making new short-term highs is a bullish development.

4/ Are Rising Rates in the Rearview?

After the U.S. Dollar Index (DXY) broke down late last year, the question was whether yields would follow.

Fast forward a few months, and the answer is yes. Yesterday, the five-year U.S. Treasury yield undercut its June pivot high.

Source: All Star Charts, with data provided by Optuma

This breakdown to fresh four-month lows trails a parabolic trendline violation similar to that of DXY.

If yields continue to fall, we can expect further strength from long-duration assets such as bonds and growth stocks.

On the other hand, if yields hook higher, it could dampen the recent rally in long-duration assets. But as long as yields do not accelerate higher, many risk assets will likely continue to repair last year’s damage.

Originally posted 13th November, 2022

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