Chart Advisor: Risk Assets Retreat


By J.C. Parets & All Star Charts

Monday, 9th May, 2022

1/ Risk Assets Retreat

2/ Tracking the Tops

3/ Commodity Currencies Crack

4/ Overhead Supply Abroad

1/ Risk Assets Retreat

There’s been a lot of talk about the positive correlation between stocks and crypto markets in recent months. And it’s for good reason. The stock market has been the best leading indicator for Bitcoin and peers for several quarters now.

While we may not have as much history as we’d like to draw any grand intermarket conclusions about this data, we do know this indicator is working right now. 

Source: All Star Charts, with data provided by Optuma

Right now, the stock market could provide an excellent indication for the future path of cryptocurrencies. Until that changes, lower stock prices could mean lower crypto prices.

2/ Tracking the Tops

Markets have been selling off indiscriminately since last week. Even the strongest stocks are under pressure as we’re seeing more and more indexes resolve lower from distribution patterns and violate critical support levels.

An excellent example of this is the small-cap value ETF, the iShares Russell 2000 Value ETF (IWN). IWN has successfully defended its range lows for the past several months as its peers have broken down.

Source: All Star Charts, with data provided by Optuma

Now that it has resolved to the downside too, we can add it to our growing list of completed tops. If the strongest can’t survive and hold their levels, what does that say about the rest of the market? To make a long story short, this action is not bullish.

3/ Commodity Currencies Crack

Strength among commodity-centric currencies was a key theme leading into Q2. Now that the rally in the U.S. dollar is beginning to broaden and accelerate, even the most resilient currencies are beginning to look vulnerable to downside resolutions.

Two of the top commodity currencies — the Australian (AUD) and Canadian (CAD) dollars — are both challenging the lower bounds of their current ranges. If these currencies lose their respective support levels, it could fuel the U.S. dollar rally, producing stiff headwinds for risk assets

Source: All Star Charts, with data provided by Optuma

Like commodity-centric currencies, commodities themselves have held up against a rising dollar for almost a year now. At some point, a strong dollar could weigh heavily on the commodity rally. And if the AUD and CAD roll over, it could just be a matter of time before commodities feel the pressure too.

4/ Overhead Supply Abroad

At the individual country level, things don’t look any better for global equities. Pockets of strength from the Latin America region and natural resource-rich nations have come under pressure in recent weeks.

Here’s the MSCI Canada ETF (EWC) as an example of what we’re seeing. Canada appeared to be resolving higher from a massive base above the pre-financial crisis highs but has failed in recent weeks.

Source: All Star Charts, with data provided by Optuma

Many other indexes from around the world are failing at critical levels such as their 2018 highs. The theme for international equities remains overhead supply. Buyers have their work cut out for them.

Originally posted on 9th May, 2022

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