Chart Advisor: Leaders Say Goodbye to their Summer Highs – The leading sectors and indexes fail to hold their August highs.

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Monday, 28th November, 2022

1/ Say Goodbye, August Highs

2/ Strength Beneath the Surface

3/ Monitoring European Yields for Confirmation

4/ No Matter the Benchmark, Bitcoin Can’t Beat It

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1/ Say Goodbye, August Highs

The sectors and indexes that have shown leadership off the October lows were recently able to reclaim their August highs. This was true for large-cap materials (XLB) and industrials (XLI), as shown in the chart below. But it’s also been the case for other cyclical sectors such as financials and energy, as well as the Dow Jones Industrial Average (DJIA) at large.

However, bears took control today and sent prices back below their pivot highs from the summer.

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Source: All Star Charts, with data provided by Optuma

While it’s a bullish development that these sectors and indexes, in addition to many individual stocks, were able to make new highs recently, it’s not a bullish development seeing them fail the way they did today.

With so many charts showing potential failed breakouts, we’ll be watching closely for follow-through in the coming days. If we get it, we may need to be prepared for corrective action to take the form of a swift move to the downside.

2/ Strength Beneath the Surface

Despite the S&P 500 still trading well below its August highs, 62% of its component stocks have rallied 20% or more off their lows, establishing a higher level of market breadth than that of the summer rally. As shown in the lower panel, this reading peaked and rolled over at the 56% threshold.

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Source: All Star Charts, with data provided by Optuma

The expansion in participation at the individual stock level is evidence of a bullish improvement in market internals. While we want to be wary of the potential failed breakouts that occurred today, the broadening of the current rally suggests that support remains strong beneath the surface. The next big piece of information is whether stocks and indexes will correct over the coming days and weeks.

3/ Monitoring European Yields for Confirmation

The rise in U.S. yields has slowed as year-to-date trendlines are being tested. While recent evidence could suggest a pause, we’ll continue to monitor global yields for confirmation of a downside move.

International benchmark yields are a mixed bag, as illustrated by the German, French, and Spanish yields in the chart below:

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Source: All Star Charts, with data provided by Optuma

Some have broken above their summer highs, while others have not. While we could anticipate choppy conditions over the coming weeks, these yields are unlikely to resolve in opposite directions. If and when U.S. yields roll over, major European yields could follow suit.

4/ No Matter the Benchmark, Bitcoin Can’t Beat It

Not only have cryptocurrencies been crushed over the past year, they have also significantly underperformed nearly every alternative investment.

Below is a triple-pane chart showing Bitcoin relative to other major asset classes, namely stocks, bonds, and commodities.

  data-src=
Source: All Star Charts, with data provided by Optuma

These relative trends have been firmly in place and pointing lower for over a year now. They are showing no signs of reversing any time soon.

This tells us that market participants are avoiding the riskiest assets, particularly cryptocurrencies, and favoring safer areas of the market. Money flows to where it is treated best, and for the time being, crypto is not it.

Originally posted 28th November 2022

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