Europe Keeps Working, Particularly Ex the Euro. Charting HEDJ.Foreign markets have made some headlines in recent months. The German Dax and French CAC 40 hit record levels toward the end of 2023. Those indexes are generally priced in local currency, and a rising dollar in 2023 led to relative underperformance among US-traded ETFs. The US Dollar Index (DXY) has consolidated around the key 104 level lately. Amid this FX volatility, non-US funds that hedge currency risk have their merit.
Research shows that hedging the dollar can work since US investors in international equities are susceptible to what is called “wrong-way” risk. That is, when stocks plunge, the move lower usually coincides with a surging dollar, compounding losses in foreign stock holdings. The WisdomTree Europe Hedged Equity Fund ETF (HEDJ) addresses this reality by focusing on holding shares in companies with significant exports while engaging in currency hedging to remove the risk of a declining euro.
What I like about HEDJ’s chart today is that it has climbed to new cycle highs as of last month, whereas traditional Europe index ETFs remain well under their mid-2021 highs. HEDJ has historically performed well during the first quarter, with shares rising 71% of the time in February and 79% in all March instances, according to data from Equity Clock. But what about the price action on the chart? I see positive signs there, too.
My featured chart illustrates that HEDJ continues to trend higher. Price is above both its rising 50-day and 200-day moving averages, and just recently held the key $41 to $42 zone. In terms of where the ETF may go from here, we can project a price target using the $31 low from October 2022 and the range highs between $41 and $42. That $10 to $11 height, added on top of the $42 breakout point, leads to a measure move price objective into the low $50s.
UUP
IHDG: A Rising Dollar is No Problem For This Foreign ETFThe US Dollar Index (DXY) has gotten off to a rip-roaring start to 2024. Up more than 2% on the year, the greenback’s ascent comes after significant declines over the final handful of months in 2023. That is usually a headwind for equities, particularly shares of companies domiciled overseas. Not surprisingly, we’ve seen many foreign index funds suffer relative to the S&P 500 thus far in January.
To combat these currency concerns, hedging FX exposure reaps rewards in these environments. The WisdomTree International Hedged Quality Dividend Growth Fund ETF (IHDG) does just that. In addition to mitigating the risks of a rising dollar, the strategy aims to own high-quality dividend growth companies. While this ETF can be a replacement for a high-yield or large-cap position among long-term investors, technicians might look at its chart and see an intriguing development.
My featured chart is a breakout in IHDG. A rally above the key $41 level tells me there is plenty of strength away from the US mega-cap tech stocks. IHDG features a rising 200-day moving average with its price above both the 200dma and nearer-term 50dma. What’s more, following the breakout above $41, next resistance could come into play around its late 2021 highs above $46, while ample volume by price in the $36 to $41 range should offer cushion on any pullbacks.
So, don’t discount non-US equities even as the SPX and QQQ lead the global markets. If the trend of a stronger DXY continues, IHDG may keep on shining versus foreign index equity ETFs.
Bearish potential detected for UUP & DXY (ie --> USD weakness)Following US dollar strength looking at DXY during the final hour of trade this morning on the US markets, both DXY and UUP represent a potential bearish opportunity should momentum continue and lower highs and lower lows be made past the current position, aligning with technical indicators of RSI and DMI. Personal stop loss for the trade would be the high of the chart formation on 03-Oct (i.e.: above the high of $30.07 for UUP and $107.348 for DXY).
We're Loose Heading Into 2024: Where the Dollar Could GoFinancial conditions have eased significantly in recent months. Pundits toss around that term haphazardly, but there are actually a handful of specific indicators that determine how loose or tight financial conditions in the domestic economy are. Of course, the Fed Funds rate is crucial to interbank lending and the corporate fixed income space along with where the 10-year Treasury yield stands. Along with those two factors, the BBB credit spread (also known as the junk bond spread) helps shape financial conditions. The trade-weighted US dollar is the other key variable. In general, lower interest rates, tighter bond spreads, higher stock prices, and a weaker dollar contribute to loosening financial conditions. Believe it or not, there are more than 100 indicators the Chicago Fed uses to figure its National Financial Conditions Index.
Let's home in on the greenback. It is one of my go-to indicators for risk across the global financial system. Today, the US Dollar Index (DXY) has drifted under 101, printing fresh 5-month lows this morning. That has been a significant tailwind for stocks, at home and abroad. Technically, a breakdown below 100 could result in the old trading range between 90 and 103 resuming, following the 2022 spike to above 113.
What does it mean for investors? More risk-on in 2024. A protracted dollar bear market would almost certainly help equities, particularly cyclicals and multinational firms that generate significant sales from overseas. Also, the Energy and Materials sectors could benefit from a weaker greenback so long as economic growth persists, along with foreign equities. Keep your eye on gold, too. For now, I encourage investors to monitor the 100 mark – that is about the low from July.
GDX: Bullish Inverse Head and Shoulders Bottom In PlayGold is up an even 10% year to date. The precious metal has frustrated bulls at times in 2023 but falling real interest rates over the past several weeks have undoubtedly been a boon. While it’s encouraging to see spot gold climb above the $2000 per ounce mark, I see potential upside in the VanEck Gold Miners ETF (GDX).
Notice in the chart that the portfolio of gold mining companies, Newmont Mining (NEM) being the biggest weight, is working on a bullish inverse head and shoulders bottom formation. I see a key neckline around the $30 mark while the low under $26 from early October represents the head. If we project that $4.50 height onto the neckline, then an upside measured move price objective to near $34.50 would be in play.
Something to watch heading into year-end is how the US Dollar Index performs. Surely a move toward 4% on the 10-year Treasury Note rate would be a macro tailwind for gold and the gold miners, but a drop under 100 might also help commodities writ large. What could cause such a combination of lower rates and a weaker greenback? Softer economic data, including a weak payrolls report due out on Friday, December 8, might be such a catalyst. As it stands, four rate cuts are priced into next year which offers a solid backdrop for precious metals heading into 2024.
$DXY Double Top Hit TodayIn today's trading session, we observed the formation of a Double Top pattern, a bearish reversal indicator commonly used in technical analysis. Despite this, it's crucial to note that the asset remains within a parallel uptrend channel. This juxtaposition of signals presents a complex trading landscape.
The Double Top pattern suggests a potential exhaustion of the asset's bullish momentum and could be a precursor to a downturn. Typically, traders would view this as a signal to consider short positions or at least to exercise caution in adding to long positions.
However, the parallel uptrend channel indicates that the overall bullish momentum is still intact, warranting continued monitoring before making any decisive trading moves. In such a scenario, it is advisable to keep an eye on additional technical indicators and market sentiment to gauge the asset's future trajectory more accurately.
In summary, the presence of both a Double Top and a parallel uptrend necessitates a balanced and nuanced trading approach.
The dollar looks bullishI really don't think the dollar is going lower here. We've largely been moving sideway for the past 6 months consolidating.
You'll see on the chart that price action in January fell below key support. Then after that we rallied and tested the 200 DMA 3 times and have also retested support 3 times and haven't broken through. Now that price action is well above support, I think the next big move is up through the 200DMA.
The only way the dollar is going lower is if it breaks that key support. And I think we need to see a higher dollar before that support is broken.
I bought a lot of $30 UUP calls for September to express this view.
USD is now bullishThe USD has given a couple of bullish signals and these are:
1. A higher high and breakout close of the highest close in the last 10 candles;
2. the MACD is turning up, crossed up the signal line too;
3. the VolDiv is beginning to turn upward and significantly turned up (white dot trigger);
4. The higher high and higher low pattern to bottom out of a downtrend had just happened, although a bit later than projected (points 1 to 5). Look forward to a higher high surpassing 106.62 and its a clear bull primary trend.
105.62 is the upside target. Then possibly 101 the downside target.
Heads up!
ps. There is something about the spike in the USD... a combination of Powell talk and the Feds raising interest rates, with a equity market panic attack. Note the imminent latter.
This also affects a lot of other plays, Gold and Crude oil, for example. Crypto may be affected but Bond rates and prices definitely!
$DXY, Dollar, strength has been weakening for some time now,TVC:DXY has been weaker since our last call, cratering even
Lower highs since peak of Sept last year
Lower highs in recent trend since Nov 2023
Relative Strength breaking lower
AMEX:UUP also shows this as well
(The following is not seen here, sorry, pls check profile for more info)
Weekly TVC:DXY shows the weakness clearer
RSI hasn't been able to break past 50 (middle area)
This is the LONGEST US #Dollar has taken to break under the breakout area (blue arrows)
Historically, RSI @ these levels has stopped rallies
At the very least temporarily
Big divergence between $SPX & $CPERThis probably is not a good sign for the SP:SPX , as these assets are highly correlated (0.88) and normally AMEX:CPER leads the business cycle.
Also, the TVC:VIX is back above 20 and NASDAQ:TLT hasn't resume its downtrend.
Even the dollar AMEX:UUP is showing strength again.
I'm 87% in cash and also have tighten all my stops.
Let's wait and see if the SP:SPX holds or breaks down.
USD looks to break last low and support... The USD Futures Daily chart is already pointing that way... Once it breaks the yellow support line, it will look for 99.
MACD slowing its ascent, while VolDiv is crossing down itself and below zero line.
TD Setup is bearish for the USD.
Bearish outlook overall.
USD to slide more...watch the rest of the week.
The USD is likely to slide down further based on the MACD; but VolDiv suggests that it is not likely to be a drastic off the cliff type.
A revisit to the last low is very probable (small yellow ellipse) as it broke down the TDST (red dotted line) and should continue to remain below. If it closes the week below the TDST, USD is in a firm bearish trend and next downside target is at 99.
Can DXY bounce here? The dollar is in a secular downtrend, but after retracing 78.6% fib of its recent up move it looks to be trying to put in a double bottom. Going long DXY here to play for a potential bounce higher. This would be a potential negative for risk assets and is certainly something to keep an eye on. Don't expect it to completely reverse trend here but a nice pop could be in order.
King Dollar trying to wake up after a 10% correction from highsThe Dollar has been in a steady decline since topping out in October, however, the looks of that decline could be finally turning.
Bulls are trying to show some signs of life down here to kick off the new year.
Currently holding a long position for a trade looking for higher.