Chart Advisor: Crypto Breadth Thrust

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By J.C. Parets & All Star Charts

Wednesday, 18th January, 2023

1/ Crypto Breadth Thrust

2/ Biotech Is Poised to Break Out

3/ Discretionary Digs In

4/ Copper and International Stocks Rally

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/ Crypto Breadth Thrust

Over the past week, we’ve seen Bitcoin and Ethereum reclaim their prior-cycle highs, adding to the growing list of bullish developments within the cryptocurrency complex. 

When we look beneath the surface into this asset class, we’re seeing a significant expansion in the number of coins participating to the upside and hitting overbought conditions.

Source: All Star Charts, with data provided by Optuma

In fact, 70% of our cryptocurrency universe rose to overbought conditions last week as measured by the 14-day relative strength index (RSI).

Seeing so many cryptocurrencies register overbought momentum readings at the same time speaks to the bullish internal strength of the crypto market as a whole. Breadth thrusts like this tend to occur at the early stages of new uptrends.

2/ Biotech Is Poised to Break Out

Crypto isn’t the only area catching a bid this week. Other high-beta assets are gaining traction as well.

The Biotech ETF (IBB) provides an excellent example. This daily bar chart below shows IBB carving out an inverted head and shoulders pattern over the past year.

Source: All Star Charts, with data provided by Optuma

This formation has the hallmarks of a healthy trend reversal. If and when stock market bulls push IBB back above this critical resistance level to fresh 52-week highs, it could send a clear “risk-on” message throughout the market.

Biotech stocks tend to be volatile, and witnessing investors’ willingness to accept additional risk is another bullish development for stocks and risk assets in general.

3/ Discretionary Digs In

Although the Consumer Discretionary Sector SPDR (XLY) has been one of the worst-performing indexes during the current cycle, these stocks have not broken down yet.

Price violated a shelf of year-to-date lows in late December, but buyers successfully repaired the damage and reclaimed this critical level of former support, resulting in a major failed breakdown.

Source: All Star Charts, with data provided by Optuma

Seeing these stocks hook higher is another sign of risk appetite increasing in the stock market. The fact that the laggards of the current cycle have stopped falling can be interpreted as a bullish development.

Bulls would like to see upside follow-through over the coming days to confirm that a tradeable low is in.

4/ Copper and International Stocks Rally

Investors bidding up copper is another sign of improving risk appetite as economists widely view this industrial metal as an economic barometer.

The overlay chart of copper futures and the Global Dow highlights the tight positive correlation between the two:

Source: All Star Charts, with data provided by Optuma

When copper does well, so do stocks and other risk assets around the world. It’s not surprising that the Global Dow, comprised of 100 international blue chip stocks, is catching higher along with copper futures.

While strength across commodities often triggers an intuitive connection to emerging markets, it’s important to remember that a bid in copper is constructive for global risk assets in general.

The impressive strength from the Global Dow and developed equity markets over the past few months suggests a sustained uptrend for international stocks could be underway.

Originally posted 18th January, 2023

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