[Premium] Three Charts For The Week Ahead

JC Parets
December 20, 2020

We retired our "Five Bull Market Barometers" in mid-July to make room for a new weekly post that's focused on the three most important charts for the week ahead.

This is that post, so let's jump into this week's edition.

Last week we focused on ITC and the FMCG sector, Nickel, and the German DAX Index.

Let's move into this week's topics.

1.  The first chart that grabbed our attention this week was the US Dollar Index. As can be seen from the chart below, the Dollar Index has been in  a corrective phase since late March this year.

The Dollar has continued to slip lower and it looks like it may move towards its support of 88.50 going forward. The RSI continues to trade in the oversold zone, indicating the inherent weakness.

Click on chart to enlarge view.

The chart below indicates the inverse relation between the US Dollar and Equities which has been playing out well all year. The USD moving lower bodes well for Equities.

We could therefore witness a continuation of the current rally until the USD indicates any signs of bottoming out. Until then, we believe that the Equities market is in a strong position.

2. The second chart we'd like to look at is from the perspective of Breadth analysis. This involves looking at the percentage of stocks at 52-week highs and the percentage of stocks in overbought territory as Nifty500 trades at record highs.

With the index charging forward, the number of stocks clocking 52-week highs has been going down, indicating that the participation at the highs is reducing. Same is the case with stocks trading in the overbought zone. We can expect a mild consolidation going forward as both breadth indicators suggest a minor cool-off.

3. The third chart we're looking at is Nikkei 225. Last week we were looking at weakness in the European index DAX. This week we're tracking the strength in Asian markets.

The index is pressing up against an important resistance level. Japan has been trading below 27000 for 20 years now. The index is now up against the same level. A breakout at this point will set the tone for the Asian markets as we go forward.

In our view, these charts will help set the tone for this week and provide us information on how we should approach the market in the coming weeks.

Also, make sure to check out our other weekly post, "Trade Of The Week."

Thanks for reading and please let us know if you have any questions.

Allstarcharts Team

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