Chart Advisor | Tuesday, May 17, 2022

 

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2/ Key Former Highs in Play

3/ Getting Defensive With Healthcare

4/ Potential Fail From USD/CAD

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Financials were among the standout sectors of today's rally. Banks, and financials more broadly, have puzzled investors with their lackluster behavior so far this year. When interest rates rise, banks make more money through their lending operations. 

For this reason, banks are usually an area of leadership in rising rate environments. That hasn’t been the case lately, however.

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All Star Charts, with data provided by Optuma

As indicated by the above chart, the S&P Bank ETF (KBE) just broke down from a large topping pattern. Today, prices rallied back to test the breakdown level of the distribution formation from below.

It would be a positive development if bulls could reclaim this key level and turn the current bearish resolution into a bull hook.

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Yesterday, we discussed the critical level that is currently being tested by small-caps. As with other areas of the market, the Russell 2000 is currently testing its 2018 highs. For now, this resistance level is holding. 

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All Star Charts, with data provided by Optuma

New information is arriving from indexes that have already violated key former highs. The Value Line Geometric Index, shown above, is an excellent example of this. Unlike the Russell, the Value Line was unable to find support at its former 2018 highs. 

With markets experiencing a bear market bounce, we’re watching levels like this one to see how much downside bulls are able to recover.

Getting Defensive With Healthcare

We’ve written extensively about the defensive leadership that is currently taking place in U.S. equity markets. Whether it be consumer staples, utilities, or low-volatility stocks, all are showing relative strength. When these sectors lead, the broader market tends to struggle on an absolute basis. It is a classic characteristic of bear markets.

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All Star Charts, with data provided by Optuma

We’ve created a custom index of the ten largest names in the healthcare sector and charted it against the S&P 500. As you can see, these stocks have been outperforming for some time now, making them the strongest of all the defensive sectors. This is illustrated by their fresh highs relative to the broad market.

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Potential Fail From USD/CAD

Weakness from commodity-centric currencies such as the Canadian dollar has been a new development and an advantage for dollar bulls. It also represents an intermarket data point that stacks against the current rally in commodities.

However, we’re starting to see the top commodity currencies reassert their strength and resilience. A great example is the potential failed breakout in the USD/CAD cross.

All Star Charts, with data provided by Optuma

If the U.S. dollar continues to fall against the Canadian dollar, not only is it constructive for commodities, but it also presents evidence that the broad strength in the U.S. dollar may be cracking.

The USD/CAD slipping back into its prior range could serve as a foreshadowing of things to come for the U.S. Dollar Index (USDX).

The Chart Report is your one-stop shop for the best charts, trading wisdom, and technical analysis. Learn More

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On the show this week, Raoul Pal, economist, investor, futurist and co-founder of Real Vision joins the show to share his perspective on the current sell-off, recession risks, and the future of crypto. Plus, we put the market's current spin-cycle in historical perspective and look for signs that the selling may be peaking. Are we "oversold", yet?

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