Chart Advisor: Buyers Close Out The Week

By J.C. Parets All Star Charts

Friday, 13th May, 2022

1/ Buyers Boost Biotech

2/ Materials Hold the Line

3/ Small Caps Play Their Hand

4/ Commodities Keep Smiling

1/ Buyers Boost Biotech

Buyers stepped in and drove biotech stocks higher toward the end of the week, as seen in the chart for the SPDR S&P Biotech ETF (XBI) producing a dragonfly doji. This potential bullish reversal pattern comes at a logical support level near the 2018 and 2020 lows. 

While we’ll likely need to see upside follow-through next week to confirm this bullish candlestick formation, this is a step in the right direction.

Source: All Star Charts, with data provided by Optuma

Although only two days have passed, it’s a promising development to see bulls come out with strong momentum since Thursday. For over a month now, bears have dominated the intraday session and most rallies have been faded. This is a clear risk-on signal as buyers are willing to take home riskier assets over the weekend. 

2/ Materials Hold the Line

A big theme in recent weeks is the growing list of downside resolutions. We continue to see an increasing number of stocks and indexes violate the lower bounds of their ranges. This hasn’t been the case with all stocks and indexes, but clearly most.

Materials stocks are among the few sectors that have maintained their range.

Source: All Star Charts, with data provided by Optuma

This is the case for large-cap materials, small-cap materials, and mid-cap materials. Buyers continue to step in right where we would expect them to and defend those former lows. We witnessed this yet again this week as XLB held above its support level of around 80. As long as these ranges are intact, materials remain an area of leadership.

3/ Small Caps Play Their Hand

Small-caps have shown rare relative strength during the late-week rally we just witnessed. While a few days of consecutive gains certainly don’t constitute a trend, this could be a logical level for a reversal in the current relative trend between small-cap and large-cap stocks.

The IWM/SPY chart, depicting the ratio of the Russell 2000 to the S&P 500, is one way to visualize this small-versus-large relationship.

Source: All Star Charts, with data provided by Optuma

As you can see, prices are reverting to the mean back above a key support level at the former 2020 lows. A minor failed move could be all that’s necessary to spark a bearish-to-bullish reversal.

4/ Commodities Keep Smiling

There is always a bull market somewhere.

Despite all of the bearish action gripping the markets, we’re still finding potentially attractive bases. And to no surprise, many of those currently are in the commodities market.

Unlike most stocks, Kansas City wheat is challenging its pivot highs from earlier this spring.

Source: All Star Charts, with data provided by Optuma

If and when Kansas City wheat breaks above its former highs, our outlook is to the upside toward new all-time highs.

This chart is a great example of the Dow Theory tenet that trends persist. The theory provides a good illustration of an expanding and contracting market within a primary uptrend, experiencing one breakout after another.

Originally posted on 13th May, 2022

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