Defensives outperform as Yields, USD push higher ahead of Infrastructure Bill signing

Technical Strategy Video:

Defensives outperform as Yields, USD push higher ahead of Infrastructure Bill signing

Key Takeaways

  • Trends, momentum remain bullish, and despite Monday’s minor dip, additional strength looks likely back to new highs for ^SPX -0.45% , NDX, DJIA 0.50%
  • Treasury yields and US Dollar both strengthened ahead of Infrastructure Bill signing. Gains in both look to continue this week, although should prove short-lived
  • Defensive sectors gain ground with minor breakouts in Staples, Utes, REITS

Minor stalling out Monday ahead of the signing of the Infrastructure Bill doesn’t change the near-term structure. Momentum and wave structure argues for a push back to new highs this week which should reach 4760-75 (SPX) ahead of a temporary consolidation. Overbought conditions have been alleviated, yet momentum has begun to wane given the extent of the rally without any real pullback. Near-term, further strength to new highs still likely

Defensives outperform as Yields, USD push higher ahead of Infrastructure Bill signing
Source: Trading View

US Dollar has managed to rally along with Treasury yields and precious metals all in tandem over the last week

The Dollar’s rally has accelerated over the last two weeks. This has only partially affected Commodities and has had barely any effect on Emerging markets, which largely have been showing promising signs of stabilizing in recent weeks. Taiwan, and India remain two of the best areas to favor within Emerging markets, while China should be bottoming, and right to position long for a larger rally into next year.

Near-term, this DXY surge likely reaches 96 before stalling based on a combination of DeMark counter-trend exhaustion, near-term overbought conditions, and Cycles which all show the Dollar weakening into 2022. One should be on the lookout for a reversal in DXY starting as early as Wednesday-Friday of this week. Pullbacks in EURUSD likely find strong support near 1.12.

DXY- US Dollar Currency Index

Defensives outperform as Yields, USD push higher ahead of Infrastructure Bill signing
Source: TradingView

Precious Metals rally looks to have begun. One should position long for intermediate-term gains, while traders are better to await Dips to buy

Precious Metals have begun to show some of the largest periods of strength this year, with Gold and Silver having broken downtrend lines from this Spring, and Gold has surpassed resistance from last August’s peaks. Gold faces near-term resistance at 1900-1920 before this pulls back to 1800-20, but it’s expected that weakness into late November should prove buyable for the Precious Metals. (See Gold Chart below)

Defensives outperform as Yields, USD push higher ahead of Infrastructure Bill signing
Source: Optuma

Finally, Consumer Staples has managed to surpass its downtrend from this past Spring peaks. Monday brought about some above-average strength in all the defensive groups which has proven to be largely non-existent so far this year. This looks positive for this group following a time of above-average underperformance. While it’s tough to embrace the Defensives for more than just a tactical long trade, Consumer Staples names like PG -0.78% , CHD -0.83% , TSN 1.96% , EL 0.07% , PEP 0.43% , HSY -0.11% , ADM 1.79% , HSY -0.11% , KR -3.09% , and WMT 0.10%  are my favorite 10 Consumer Staples stocks among XLP -0.33% , and it’s expected that GIS 0.26% , KO -0.67% , STZ -0.63%  and WMT 0.10%  will all soon move back to new monthly highs, and show structurally positive technical breakouts in the near future.

Defensives outperform as Yields, USD push higher ahead of Infrastructure Bill signing
Source: TradingView
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