Chart Advisor: Energy Holds the Line

By J.C. Parets & All Star Charts

Thursday, 5th January, 2023

1/ Energy Holds the Line

The energy sector gained today as the majority of the market succumbed to renewed selling pressure. Its relative strength comes as no surprise, as energy sat atop the leaderboard throughout 2022.

However, the strong uptrend for energy stocks could be in danger as price retests a trendline anchored from the 2020 lows.

2/ Buying European Banks

European financials (EUFN) have been among the best-performing industry groups over the past three months. As you can see, price recently reclaimed a critical level of interest and is pushing against six-month highs.

Source: All Star Charts, with data provided by Optuma

We monitor this group closely, as these stocks provide vital information on global risk. If EUFN presses higher, it’s hard for us to entertain a bearish thesis for stocks. As long as investors are buying European financials, we could be entering an environment where the broad market manages to weather bouts of selling pressure.

3/ It’s Time to Look Overseas

Although international stocks have consistently underperformed their U.S. counterparts for over a decade, there is evidence that this may be changing.

With some progress in global equities as of late, we are watching for a potential reversal in the relative trend that favors international stocks in the near term. A trend reversal in this ratio also favors cyclical stocks more broadly, as relative strength from international markets highlights the benefits of reduced exposure to tech stocks.

4/ The Pound Drops

The U.S. dollar is off to a good start in 2023, with major peer currencies feeling the pressure. This is particularly true for the British pound (GBP), which is currently trading below a critical shelf of former lows at approximately $1.1963.

Source: All Star Charts, with data provided by Optuma

If the bulls fail to defend this level soon, we could witness downside follow-through in the pound. A sustained breakdown from current levels could create a favorable scenario for the dollar, and by default, stock market bears.

On the other hand, if the pound manages to reclaim former multi-year support, risk assets could receive a reprieve from today’s renewed selling pressure. In its current position, the pound now represents downside risk as it drops below a crucial support level.

Originally posted on 5th January 2023

Disclosure: Investopedia

Investopedia.com: The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy.  While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Investopedia and is being posted with permission from Investopedia. The views expressed in this material are solely those of the author and/or Investopedia and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclosure: ETFs

Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing.  Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: Forex

There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.