Chart Advisor: Tesla Takes Autopilot Down – Falling consumer discretionary stocks limit the market’s gains, led by Tesla and Amazon.

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By J.C. Parets & All Star Charts

Friday, 18th November, 2022

1/ TSLA Drives Down the Wrong Road

2/ Solana Gets Slammed

3/ Energy and Crude Diverge

4/ More Woes for the Dollar

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/ TSLA Drives Down the Wrong Road

Consumer discretionary stocks (XLY) were the worst-performing market sector this week after one of its largest components, Tesla (TSLA), fell over 8% and closed at new year-to-date lows.

Price, shown by the black line, is on the verge of violating the lower bounds of a massive topping formation. The same is true for the relative trend versus the S&P 500, shown in blue.

Source: All Star Charts, with data provided by Optuma

The relative trend often acts as confirmation for the absolute trend. As such, we might expect both of these charts to resolve in the same direction over time. In the case of TSLA, the charts looks nearly identical, providing timely supporting evidence of the underlying trend.

We’re eyeing $180 as potential support for TSLA. If price violates this level, the bias could be to the downside, and the relative trend could follow lower.

2/ Solana Gets Slammed

Major cryptocurrencies such as Bitcoin and Ethereum have been the most resilient crypto assets during the current bear market. Discounting altcoins, it is easy to understate just how severe the drawdowns have been.

Solana (SOL), which is now the world’s 14th largest cryptocurrency, provides a great example of the type of damage taking place in the crypto markets.

Source: All Star Charts, with data provided by Optuma

Solana was initially one of the biggest crypto success stories, rallying roughly 25,000% from $1 in December of 2020 to $260 by late 2021. Those days are long gone, as price has plummeted ever since.

SOL is currently in a 95% drawdown and just registered its worst weekly performance in history. With losses extending this week, there doesn’t appear to be any exhaustion among sellers.

If the long-term topping formation proves to be a valid one, we could anticipate another leg down from here. The 2020 highs near $5 could be the next logical zone of support. If that doesn’t hold, there’s always support at zero.

3/ Energy and Crude Diverge

With the large-cap Energy Sector SPDR (XLE) failing to hold above its June highs this week, the divergence between energy stocks and commodities could become a concerning development.

Crude oil and energy stocks have been trending in opposite directions since the summer, with the gap becoming more pronounced over the past month.

Source: All Star Charts, with data provided by Optuma

We’ve included the 100-day rolling correlation between crude oil and XLE in the lower pane of the above chart, in order to illustrate just how rare a prolonged dislocation is between these two assets.

It could be only a matter of time until the historically-strong positive correlation between energy stocks and commodities reasserts itself. With XLE printing a potential failed breakout while crude oil slides toward fresh lows this week, the odds are currently in favor of stocks catching down to the price of oil.

4/ More Woes for the Dollar

The U.S. Dollar Index (DXY) has broken down to fresh multi-month lows. Developed and emerging market currencies alike are gaining ground relative to the dollar.

The USD/MXN exchange rate completed a head-and-shoulders continuation pattern with a decisive breakdown this week.

Source: All Star Charts, with data provided by Optuma

This chart highlights that a head-and-shoulders pattern, though commonly regarded as a reversal formation, can also act as a continuation pattern. It also confirms that the U.S. dollar is starting to struggle, and commodity-centric emerging market currencies are showing relative strength.

As supplemental data arrives, more currency pairs are taking out critical levels, suggesting further dollar weakness could be in store over the coming weeks and quarters.

Originally posted 18th November, 2022

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