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Chart Advisor: Energetic Investors


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Friday, November 20, 2020 Headlines

1. Energy sector continues to surge while safety sectors lag
2. A new way to gauge consumer anxiety
3. Forecasting Bitcoin price trends

Market Moves

Though the major stock market indexes retreated slightly today, investors should take a closer look at the sectors doing relatively well since the beginning of the month. The analysis shows an unavoidable interpretation of optimistic sentiment among investors.

The chart below displays all of State Street’s Sector index ETFs in a 30-minute time frame stretching from the beginning of November until today. What stands out is that the sectors that are performing the best, Energy (XLE), Financial (XLF), and Industrial (XLI), do not include technology or consumer discretionary funds. However, the sectors lagging all others include Consumer Staples (XLP) and Utilities (XLU).

Those last two are often dubbed defensive sectors. Those sectors are places where investors go to hide out when they expect rocky times ahead for the market. The fact that these are getting left behind clearly shows that investors are eager to activate new money into things they think will grow.

Energy and Industrials taking a leading position during a sector rotation is a pattern commonly associated with the midway to late phase in the bullish part of the business cycle.

A New Way to Gauge Consumer Anxiety

If your last trip to Costco or Sam’s Club had you noticing a renewed (though less intense) shortage of toilet paper, then the chart below may be of interest to you. Here is a unique comparison that might prove useful as investors and consumers both vacillate in their fears over future social lockdowns.

This chart graphs in candlestick form the simple difference between the share price of Proctor & Gamble (PG) and Exxon Mobil (XOM) and then compares that price action to a line chart of the Cboe Volatility Index (VIX). The candlesticks have a 20-day Donchian Channel indicator applied to them to mark when the price action makes a new monthly high or low.

It appears that when these candles first touch the lower line of the Donchian Channel indicator, a new, lower closing value of the VIX is not far behind. This indication is likely anecdotal and connected to the current pandemic circumstances. Those conditions aren’t going away just yet, so the indicator might prove useful until then.

Bitcoin’s vertical push over the past week has many investors curious about the timing of entering this asset. It begs a fascinating question about whether this is the beginning of a new, very strong, upward trend. Chart watchers will want to review the following points on the chart below.

In this chart the all-time high for bitcoin is shown as the green horizontal line. The dark red line is the 2019 high. Just one week ago the price was nearly right in between the two. If the price of bitcoin reaches its all-time high, it would not be unusual for it to pull back lower as traders take profits. When it does so, astute chart watchers will know to keep an eye on the Fibonacci retracement levels. The deeper the pullback from resistance, the longer and slower the upward trend is likely to be.

The Bottom Line

Stock indexes retreated today but sector indexes show a bullish alignment that suggests investors are not nearly as worried about the future as they are worried about missing out on new moves. They appear to favor those sectors that were formerly beaten down.

Originally Published on November 20, 2020

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Trading in Bitcoin futures is especially risky and is only for clients with a high risk tolerance and the financial ability to sustain losses. More information about the risk of trading bitcoin products can be found on the IBKR website.  If you’re new to bitcoin, or futures in general please visit CME Bitcoin Futures.

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