Chart Advisor: Risk Assets Soar – The U.S. dollar tumbles as long-duration assets soar.Chart Advisor:


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By J.C. Parets & All Star Charts

Thursday, 10th November, 2022

1/ Dollar Strength Erodes

2/ Bonds Mark Potential Inflection Point

3/ Internet Stocks Are Up and Running

4/ Viva Italia!

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1/ Dollar Strength Erodes

For weeks, evidence has pointed to a top in the U.S. Dollar Index (DXY).

Sentiment, volatility, and momentum thrusts could all portend an end to the U.S. dollar rally. The chart below highlights these data points.

Source: All Star Charts, with data provided by Optuma

Extreme volatility and strong directional moves often signal the exhaustion or initiation of a trend.

Regardless of the mounting evidence, price hadn’t indicated any significant weakness in the structural trend—until today.

The U.S. Dollar Index is breaking down to fresh multi-month lows while the British pound posted its best day since the early 1990s, and the yen returned nearly 500 pips against the dollar.

Considering the weight of the evidence, the dollar rally could be over, providing a strong tailwind for risk assets.

2/ Bonds Mark Potential Inflection Point

In recent weeks, we’ve written extensively about momentum thrusts, highlighting one-day and one-week rates of change.

Today, the U.S. Aggregate Bond Index (AGG) posted its largest single-day gain aside from 2008 and early 2020.

Source: All Star Charts, with data provided by Optuma

These strong upside readings have marked key inflection points in the past, leading to significant rallies. As a result, the historic sell-off in bonds taking place this year could experience a pause, at the very least.

This is another achievement for the stock market bulls, as the accelerated rise in rates has proved a formidable headwind.

3/ Internet Stocks Are Up and Running

Internet stocks (FDN) have been among the weakest industry groups during the current bear market. These stocks have moved in a straight line lower since November of last year, but that could be due for a change.

Today, price reclaimed its critical former lows from summer by achieving its largest daily gain since October of 2008.

Source: All Star Charts, with data provided by Optuma

Not only are prices reclaiming a key support level, but momentum continues to make higher lows and has remained above oversold territory since May.

We could begin to see some degree of mean reversion occur at the current levels. As the adage says, “from failed moves come fast moves in the opposite direction.”

4/ Viva Italia!

While the improvements in market breadth and internals continue to build in the U.S. equity market, we’re seeing a similar story overseas.

The strong rallies that formed off last month’s lows are showing no signs of stopping, as many international indexes are making new highs and achieving overbought readings for the first time since early 2021.

The iShares MSCI Italy ETF (EWI) has emerged as an international leader, and provides a great example of this theme.

Source: All Star Charts, with data provided by Optuma

While EWI did not make its final low until last month, it has been in the process of building a base since early summer. After printing a bullish momentum divergence at last month’s trough, buyers have taken control and sent prices to fresh five-month highs. 

Just as EWI printed a bearish breakaway gap in June, it is resolving back above its summer highs with a bullish breakaway gap this week. Momentum is confirming the recent price action and pattern resolution, as the 14-period Relative Strength Index (RSI) is overbought and at its highest level in nearly two years. Bulls would like to see similar action from other international indexes in the near future.

Originally posted 10th November, 2022

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