Chart Advisor: Financials Fight Back

By J.C. Parets & All Star Charts

Friday, 14th April, 2023

1/ Financials Fight Back

2/ DM Over EM

3/ Copper Catches Rotation

4/ New Highs for Jeera

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1/ Financials Fight Back

The large-cap financial sector SPDR (XLF) led all sectors this week, capping off with a 1% gain today on the heels of big earnings beats from JPMorgan Chase (JPM) and Citigroup (C).

The 30.50 level in XLF not only corresponds with recent pivot lows, but also the prior-cycle highs from 2020, 2018, and 2007. As you can see in the top pane of the chart, buyers stepped in and defended this critical polarity zone again over the past few weeks:

When it comes to the internal health of the financial sector, banks remain a concern. This is particularly true for the regional banks, which just registered their lowest weekly close since November of 2020.

The chart above does an excellent job of illustrating the divergence between these banks and the financial sector as a whole. While the latter is still holding constructively above its 2022 lows, the S&P Regional Bank Index (KRE) violated this level last month and has been coiling in a bearish continuation pattern since. With earnings now underway, we could expect this coil to resolve higher or lower soon. If it heads lower, XLF could follow suit.

2/ DM Over EM

Excluding the U.S., developed market equities (VEA) have been trading in a well-defined range relative to emerging markets (EEM) over the past seven years. Since 2021 however, developed market stocks have heavily outperformed their emerging market counterparts.

The chart below shows this relationship carving out a massive base:

As you can see, price is pressing against the upper bounds of its range, threatening to break out. Where it goes from here could determine which one of these groups leads in the future.

If the ratio resolves higher and makes a decisive upside resolution, a sustained period of leadership from developed markets could be underway. At the same time, there is no better place for emerging market stocks to catch a relative bid and reassert their old leadership than at current levels.

3/ Copper Catches Rotation

Outside of financials, other cyclical groups like energy and materials enjoyed broad-based rallies this week. Copper miners were among the strongest industry groups from these sectors.

Here is a weekly chart of Southern Copper Co. (SCCO), one of the largest copper miners in the U.S. and one of the biggest components of the Global X Copper Miners ETF (COPX):

As one of the industry leaders, SCCO rallied 7.8% this week to close at all-time weekly closing highs. When specific sectors or groups catch rotation, the strongest stocks tend to make new highs first. We could expect to see participation broaden, with more stocks in the materials sector making new highs in the coming weeks.

As for SCCO, as long as price makes a decisive move above the former highs at the 161.8% Fibonacci extension, the path of least resistance could be higher. We’re on the lookout for strong follow-through next week as confirmation.

4/ New Highs for Jeera

Yesterday, we highlighted sugar futures as a pocket of strength within the commodity space, which can easily be overlooked by solely monitoring the big three: crude oil, copper, and gold.

Jeera (cumin seed) futures are experiencing an even more explosive rally:

It’s another massive rally that looks similar to a chart of sugar futures. Both carved out big multi-year bases, completing bearish-to-bullish reversals in price and momentum.

Though inflation may be easing, commodities continue to warn against conflating “easing” with absent.

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Originally posted 14th April 2023