Chart Advisor: Who’s Making New Highs? – The summer highs come into focus for key market sectors.

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Tuesday, 29th November, 2022

1/ All Eyes on Summer Highs

2/ Insurance Leads the Charge

3/ Nifty Prints Fresh All-Time Highs

4/ Commodity Currencies Send Mixed Signals

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1/ All Eyes on Summer Highs

It takes higher highs to establish a new uptrend. For this reason, we’re focused on the August highs.

The bubble chart below shows the percentage of stocks that are trading above their respective August highs on the x-axis, as well as the distance the average component is from those highs on the y-axis.

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Source: All Star Charts, with data provided by Optuma

We ran the analysis on the entire Russell 3000 Index, which includes nearly all publicly-traded stocks in the U.S. equity market. The size of the bubble represents the number of components in each sector. 

The strongest sectors are those in which most stocks have already reclaimed their August pivot highs. This category includes energy, financials, and industrials. On the other hand, the weakest groups are those in the lower left. The healthcare, technology, and communication services sectors all have fewer than 20% of their constituents back above these respective levels. 

What stands out most from this chart is seeing all the cyclical and value sectors in the upper right, indicating relative strength, while the opposite is true for growth-oriented sectors.

2/ Insurance Leads the Charge

It’s hard to find an industry group that looks better-positioned than insurance right now. While most market leaders are still grappling with their summer pivot highs, the iShares Insurance ETF (IAK) reclaimed this key level back in October.

IAK is now testing its all-time highs from back in April. This level coincides with 92.50.

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Source: All Star Charts, with data provided by Optuma

After consolidating in a sideways range for most of the past two years, insurance bulls may have absorbed all the overhead supply at this resistance zone.

If IAK holds above this key level, the bias could be higher, resulting in a fresh leg to the upside. For now, insurance stocks are leading the charge for the broader market as they are one of the first groups to achieve new all-time highs at the index level.

3/ Nifty Prints Fresh All-Time Highs

While insurance stocks outperform in the U.S., India is a leader among international equity markets.

Here’s a look at India’s Nifty 50 Index breaking out of a 12-month base to fresh all-time highs:

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Source: All Star Charts, with data provided by Optuma

It’s difficult to find another stock index that looks as good as the Nifty 50. But it’s not just about Indian stocks. Fresh all-time highs for the Nifty is bullish for global equities at large, including U.S. stocks. India has the second-highest index weighting in the MSCI Emerging Markets Index, trailing only China.

These new highs represent a bullish risk appetite among investors and strength among cyclical value areas of the market, as financial and energy stocks dominate the index.

4/ Commodity Currencies Send Mixed Signals

As the decline in the U.S. Dollar Index (DXY) finds support, we’re searching for insight into the next directional move for the dollar. Whether or not key commodity currencies print fresh highs over the coming weeks could provide valuable information.

The triple-pane chart below shows the performance of the Australian, Canadian, and New Zealand dollars relative to the U.S. dollar:

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Source: All Star Charts, with data provided by Optuma

All three currency pairs have challenged their July pivot lows to varying degrees of success. NZD/USD is holding above its respective lows while AUD/USD straddles this level. Meanwhile, CAD/USD is retreating lower.

It’s hard to picture a sustained downtrend in the U.S. dollar until these three commodity-centric currencies begin to trend in unison.

Originally posted 29th November 2022

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