Technicals | Jul 28 2010
By Rudi Filapek-Vandyck
Base metals such as aluminium and copper -the two representing the largest trading volumes- have been accumulating increasing (technical) evidence that a bottom might be in place, but technical chartists at Barclays Capital nevertheless issued a warning this morning. They report the broader commodity complex appears on the precipice of another break down.
All three major indices for commodities -the Reuters CRB, the Dow Jones UBS Commodities Index and the SP GSCI- have all been posting bearish signals these past days, report the analysts. In case of the former two, the analysts are reporting “bearish engulfing candles” while the latter has posted a “bearish outside day”.
For the short term, the analysts thus predict weakness ahead. For the medium to longer term they are now talking “faltering bull trend”.
Technical signals to support this view include a broken pattern of higher highs on price charts, the 200 day moving average no longer acting as support and overall momentum, measured by the RSI, signaling a shift to a lower range.
The view seems to coincide with similar events in the oil futures market where the September contract for West Texan Intermediate has now also posted a “bearish outside bar”, report the analysts.
Investors should watch the 60-day average at US$76.93/bbl say the analysts as that level is considered key for the short term outlook.
With regards to copper and aluminium, Barclays analysts believe the head-and-shoulders formations that appeared on price charts between May and July confirm a bottoming process has taken place.
The TechWizard, on the other hand, reports this morning he has become more positive on prospects for US equities.
It is his observation that the US Futures market has rallied over 110 points coming off its 1000 low in early July. The market is now back up to the 22 June high of 1130. The Wizard thinks that a weekly close above this level would see a strong run to 1175.
However, failure is likely to see a pull back as it would indicate the market has once again gone up too far too soon.
Things to like about the present market situation, reports the Wizard, include the fact that the 20 moving average (M/A) has clearly turned up and also that the Bollinger bands have started to open up. Both signals are usually bullish, says the Wizard.
The TechWizard is the pseudonym of Scott Morrison, whose experience in financial markets exceeds twenty years. Morrison operates his own website nowadays at www.techwizard.com.au All views expressed are the authors', not FNArena's (see our disclaimer).
