Chart Advisor: Downside Participation Broadens

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By J.C. Parets & All Star Charts

Tuesday, 30th August, 2022

1/ A Key Level in Copper

2/ New Lows Around the Globe

3/ Investors Play Defense

4/ Long the Strongest, Short the Weakest

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/ A Key Level in Copper

We’ve written extensively about the near-term strength stemming from the materials and energy sectors, as both have been resilient despite recent volatility. However, since late last week, materials have begun to falter. And today, we’re seeing that weakness spill over into energy.

2/ New Lows Around the Globe

Things haven’t looked good for global equities since early this year. With many indexes from around the world failing at critical levels, a reversal to the upside could be unlikely. International stocks in particular are quite vulnerable, and could be susceptible to further downside into the end of the year.

3/ Investors Play Defense

Outperformance from utilities stocks is not something we tend to see during bull markets as it is evidence of risk aversion, as opposed to risk-seeking behavior. When investors seek safety during market downturns, utilities are among the defensive sectors they tend to hide out in.

Bulls do not want to see sustained relative strength from utilities or any other defensive sector as that tells us investors are positioning for more tough times ahead.

4/ Long the Strongest, Short the Weakest

The Canadian dollar has been one of the most resilient currencies against a strengthening U.S. dollar, as have most commodity-centric currencies. By contrast, the Japanese yen has been one of the weakest global currencies over the past few years.

As you can see, the CAD/JPY currency cross is moving up and to the right of the chart.

Source: All Star Charts, with data provided by Optuma

It has been marching higher, expanding and contracting within a bullish momentum regime since last fall. This is typical behavior of a strong uptrend.

CAD/JPY is already up over one thousand pips since March. After churning sideways over the past three months, it could be ready for a fresh upside resolution. If the Canadian dollar is breaking to new highs against the yen, commodities and other cyclical assets are probably holding up better than most.

Originally posted 30th August, 2022

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