Technicals | Aug 12 2010
By Rudi Filapek-Vandyck
Following on from yesterday's story “Crude Oil The Gauge For Weakening Sentiment?” (see FNArena Technicals) -which couldn't have possibly been more accurate- we can now report that the overall news for risk assets doesn't seem to be getting any better.
Well, not if market analysis by technical analysts at Barclays in London can be taken for gospel.
It would seem the analysts have been somewhat surprised by how quickly things have moved in negative direction this week. They note the S&P500 index has now rapidly reversed from its 100 moving average to right on top of its 50 moving average at the overnight close.
Why is this an important observation? Because in the past the 50 M/A has often proved either a hard nut to crack (technical resistance) or it has provided the market with solid support.
Alas for the optimists, the team's analysis regarding crude oil and gold do not suggest “solid support” will prove strong enough to withstand further weakness.
It's not all bad news though, with the analysts commenting “Given its recent importance, a break below [the 50 M/A] would likely result in a further acceleration lower (and further pressure on risk assets) to the 1056, July 20 lows and potential the February/May/June lows in the 1044/1040 area. However, this is likely the worst-case scenario before renewed basing and a subsequent turn higher”.
Depending on the particular mindset of the reader this can be read as a glass half-empty or a glass half-full scenario.
The team maintains its view that gold is on its way to US$1180/oz, with an “overshoot” to the downside seen as a key risk.
For crude oil things have simply turned worse. Yesterday, the team suggested WTI front month futures (expiration in September) were likely to revisit price levels of around US$79/bbl. Today, the team believes this is likely to prove too optimistic.
The analysts now believe further falls towards US$73.93/73.07/bbl are more likely. This area represents the 78.6% retracement level and May/July channel support.
