Nymex Light Crude is headed for a test of major support at the 2011 low of $75/barrel after breaking support at $92/barrel. 13-Week Twiggs Momentum (below zero) already signals a down-trend. Brent Crude has also broken primary support, but is maintaining a premium of $5 to $10 per barrel.
* Target calculation: 92 – ( 110 – 92 ) = 74
Minutes of the September FOMC meeting highlight growing unease with the strong US Dollar and a weak global economy. The market read this as “low interest rates” and commenced a buying spree. Last year the quarter-end sell-off ended on October 9th after a 4.2% fall. This year’s correction fell 4.7%, lasting 13 days (so far) compared to 15 days in 2013.
Roberto Dominguez at NY Daily News reports:
“The start of earnings season, with companies including Costco and Alcoa reporting quarterly profits that beat forecasts, also helped push the S&P 500 to its biggest rally in a year.”
While Cullen Roche writes that the US fiscal deficit is shrinking:
“…tax receipts have surged by 7.7% year over year and are up 48% over the last 5 years. And while some of this is due to tax increases the vast majority is due to a healing private sector.”
Bellwether transport stock Fedex continues its primary up-trend, signaling improved economic activity.
No doubt boosted by a falling outlook for crude oil.
With positive news about, we should be careful not to forget the Fed’s concern with a weak global economy. While this may drive oil prices even lower, the impact on international sales of major exporters will be closely watched.
S&P 500 recovery above 2000 would indicate the correction is over, while follow-through above 2020 would signal another advance. A 21-day Twiggs Money Flow trough above zero would signal a healthy up-trend. Reversal below 1925 is unlikely, but would test primary support at 1900/1910.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) retreated to 15%, indicating low volatility typical of a bull market.
Interesting view from Louis Woodhill on Forbes:
Over the past 64 years, real gold prices have averaged $544.91/oz in 4Q2013 dollars, and real crude oil prices have averaged $38.85 bbl. This means that an ounce of gold will typically buy about 14 barrels of oil.
If we fully stabilized the dollar today, we could expect gold prices to fall toward $550/oz, and oil prices to fall toward $40.00/bbl. The huge dollar premiums that gold and oil currently command reflect the value that these easy-to-store commodities have as hedges against dollar instability. If we reformed our monetary control system to guarantee the real value of the dollar, we would eliminate this risk. The risk premiums currently enjoyed by oil and gold would then decline toward zero, as the new monetary system gained credibility.
Are the current gold and oil premiums simply a hedge against an unstable dollar?
Read more at It's Time To Drive Russia Bankrupt — Again.
Again from Energy Burrito at Oilprice.com:
…the Russian ruble has been gradually depreciating throughout this year amid rising geopolitical tension in Ukraine. It has now dropped 12% versus the US dollar in 2014.
Yet while a falling ruble hurts Russian imports as they become increasingly more expensive to buy, Russia reaps the rewards when it comes to exports. And it is seeing the greatest benefit from its largest export: oil. To the tune of 7 million barrels a day.
Hence, while crude prices in US dollars have dropped 12% in value since the beginning of July, crude oil in rubles has only dropped 3.4%. For Russian coffers, it is good for the ruble to be bad…
Read more at Bad Has Never Looked So Good.
Energy Burrito writes that gasoline prices have fallen nearly 30 cents from their Summer highs:
Why is this good? Because of the one-penny-to-one-billion spending rule. The rule of thumb is that a one-penny change in the price of gasoline leads to a $1 billion increase in household consumption on an annualized basis….gasoline accounts for $2,500 of household spending each year.
Read more at Bad Has Never Looked So Good | Oilprice.com.
Gold broke support at $1240/ounce to signal a primary down-trend. Declining 13-week Twiggs Momentum, below zero, strengthens the signal. Follow-through below $1200 would confirm. The sell-off is being driven by a rising Dollar.
Crude oil is also falling, with Brent Crude testing its 18-month low. Nymex breach of $92/barrel would also signal a primary down-trend.
From Nick Cunningham at Oilprice.com:
The glut of supplies and weak demand is causing problems for OPEC, according to the cartel’s monthly report. OPEC lowered its demand projection for 2015 by 200,000 and in August, Saudi Arabia cut production by 400,000 bpd in an effort to stem oversupply.
It is probably no coincidence, but lower oil prices will hurt the Russian economy. As Nick points out:
Russia needs between $110 and $117 per barrel to finance its spending, which means the Kremlin can’t be happy as it watches Brent prices continue to drop. Combined with an already weak economy, Russia could see its $19 billion surplus become a deficit by the end of the year.
Falling oil prices will benefit the global economy in the medium-term. Subduing Russia’s territorial ambitions will be an added bonus.
From Nick Cunningham at Oilprice.com
Brent crude has now dipped below $100 per barrel, for the first time in over a year. WTI is trading around $92 per barrel, a 16-month low.
…The glut of supplies and weak demand is causing problems for OPEC, according to the cartel’s monthly report. OPEC lowered its demand projection for 2015 by 200,000 and in August, Saudi Arabia cut production by 400,000 bpd in an effort to stem oversupply.
Read more at No Rebound In Sight For Sliding Oil Prices.
Nymex Light Crude is testing primary support at $92/barrel while 13-week Twiggs Momentum (below zero) warns of a down-trend. Brent Crude is also approaching primary support, at $99/barrel. Breach of support would confirm a down-trend.
Commodity prices are falling as the Dollar strengthens. Dow Jones UBS Commodity Index is approaching primary support at 122, while 13-week Twiggs Momentum (below zero) again warns of a down-trend. Breach of primary support would confirm.
Aluminum alloy, however, continues its primary advance.
And nickel is likely to follow, having broken resistance at 18500.
Crude oil prices are falling. Nymex Light Crude is testing primary support at $92/barrel and Brent Crude at $99/barrel. Breach of support would signal a down-trend.
Commodity prices remain low, in line with sluggish world trade.
CLSA chart: World Trade vs Commodity Prices pic.twitter.com/o8BpGua7ec
— Market Timing (@Market_Time) August 25, 2014
But that does not tell the full story.
Bulk commodity prices are falling as Chinese construction slows…
…While copper prices recovered above 7000/tonne. Penetration of the declining trendline suggests that the down-trend is slowing. Breakout above 7400 would strengthen the signal.
And aluminum alloy…
…and nickel show surprising strength, signaling an up-trend.
The Dollar Index followed through above resistance at 81.50, signaling a long-term advance to test the 2013 highs at 84.50. Recovery of 13-week Twiggs Momentum above zero strengthens the signal. Reversal below 81.50 is most unlikely, but would warn of another test of support at 80.00.
* Target calculation: 81.50 – ( 81.50 – 79.00 ) = 84.00
The yield on ten-year Treasury Notes recovered above support at 2.40 percent, but the primary trend is downward. Respect of the descending trendline is likely and reversal below 2.40 would confirm a decline to 2.00 percent*. 13-Week Twiggs Momentum holding below zero strengthens the bear signal. Recovery above the descending trendline is unlikely, but would suggest a rally to 2.65/2.70 percent.
* Target calculation: 2.50 – ( 3.00 – 2.50 ) = 2.00
There are two factors driving the fall in long-term interest rates. The first is aggressive purchases of US treasuries by China in order to maintain a weak yuan. The second is the abysmal state of the employment market when we look past the official unemployment figures. Employment levels for males in the 25 to 54 age group remain roughly 6% — and females 5% — below their previous high.
Gold is consolidating in a triangle pattern, between $1200 and $1400/ounce. Price action is now too close to the apex (“>”) of the triangle for breakouts to be reliable, but breach of support at $1280 would test $1240, while breakout above $1320 would test $1350. Oscillation of 13-week Twiggs Momentum close to zero continues to signal hesitancy. In the longer term, recovery above $1350 would indicate a primary up-trend, while breach of support at $1240/$1250 would signal a down-trend.
* Target calculation: 1200 – ( 1400 – 1200 ) = 1000
Declining crude prices may be contributing to lower inflation expectations and weaker gold demand (as an inflation hedge). Brent Crude breach of $99/barrel would confirm a primary down-trend as would Nymex WTI crude below $92/barrel.
