US Dollar Index (DXY) remained weak over the previous week. It consolidated following an attempt to break out from the present pattern but ended modestly negative on a weekly note.
Commodities, including Metals, have largely shared a negative correlation to the Dollar Index. Off late, the steel stocks have seen renewed strength and have shown bullish signs on the charts. However, if the Dollar Index resumes its up move, then we may see these steel stocks struggling and potentially marking an intermediate top for themselves.
SLX – VanEck Vector Steel ETF (NYSE) for that matter throws interesting insights. The current technical structure remains buoyant. The ETF attempted a breakout above $65.50 – $66 levels; however, failure to sustain with the attempted breakout on Friday highlights this concern. The Relative Strength Line (RS Line) against SPX (S&P500) is rising, has moved past the falling trend line resistance, and has crossed above the 50 DMA.
The Weekly Chart of SLX shows a similarly buoyant structure. It has broken out from a channel; however, it is approaching the double top resistance at 68 – 68.20. Despite the breakout from a channel, the ETF may find strong resistance near this point.
The analysis of the Dollar Index (DXY) weekly chart hints that some incremental up move may be there in the metal stocks but it is time that we now also look at protecting profits at higher levels.
Following a strong and evident bullish divergence of RSI against the price, the Dollar Index found its intermediate bottom in the $ 89.50 – $90 zone and is seen inching higher. Although it retraced inside the pattern following the previous week’s close, it has attempted a serious breakout from the present pattern.
Some retracement in US Dollar Index (DXY) cannot be ruled out, and this may result in some incremental up moves in the metal stocks. However, any resumption in the up move in US Dollar Index may be the first signal that the present buoyancy in the metal stocks may be challenged that may be the time when we have to consider protecting profits and taking some money off the table from the metal stocks.
Milan Vaishnav, CMT, MSTA,