From the desk of Tom Bruni @BruniCharting
Tuesday’s Mystery Chart is one of my favorite charts right now, so thank you all for your feedback and participation.
I received a lot of answers, but I’d say 2/3 of you were buyers and the other 1/3 were sellers.
With that as our backdrop, let’s get into it.
Here’s the ratio chart of the Social Media ETF (SOCL) relative to the Technology Sector SPDR (XLK). The reason this chart is so interesting to me right now is that it begs the question of whether we’re going to see a meaningful rotation out of leading Tech subsectors like Software and into Social, which remains roughly 15% off of its March 2018 highs.
This is the fourth test of long-term support near 0.40-0.41 and momentum has put in a sizeable bullish divergence. With prices reversing sharply from their recent lows and breaking back above support and the downtrend line from its year-to-date highs, near-term mean reversion looks likely.
Click on chart to enlarge view.
From a pure reward/risk perspective, I’d much rather be long than short at current levels. Due to its counter-trend nature it’s a lower-probability setup, however, the reward/risk would suggest that this trade is at least worth a look as long as prices remain above their recent lows of 0.402.
Thanks for reading and please let us know if you have any questions!