Crude futures (Light Crude December 2015 – CLZ2015) are testing primary support at $40/barrel. Breach is likely — and would signal a decline to $30*. Respect of support would indicate another bear rally.
* Target calculation: 40 – ( 50 – 40 ) = 30
Crude heading for $40/barrel
Crude futures (Light Crude December 2015 – CLZ2015) broke support at $44.70 per barrel, warning of another test of primary support at $40. Follow-through below $43 would confirm. Supply continues to exceed demand and breach of $40 would offer a (long-term) target of $30*. Recovery above $50 per barrel is most unlikely unless there is a serious disruption to supply.
* Target calculation: 40 – ( 50 – 40 ) = 30
Gold testing $1100/ounce
Solid job numbers have boosted the prospects for an interest rate hike before the end of the year. Employment is growing steadily, having exceeded its 2008 high by more than 4.2 million new jobs.
Unemployment is falling as job growth holds above 2.0 percent a year.
Interest Rates and the Dollar
Long-term interest rates are rising, with 10-year Treasury yields headed for a test of resistance at 2.50 percent after breaking through 2.25 percent. Recovery of 13-week Twiggs Momentum above zero indicates an up-trend. Breakout above 2.50 percent would confirm.
The Dollar strengthened in response to rising yields, the Dollar Index breaking resistance at 98. Respect of zero by 13-week Twiggs Momentum indicates long-term buying pressure. Breakout above 100 would confirm another advance, with a target of 107*.
* Target calculation: 100 + ( 100 – 93 ) = 107
Gold
Gold fell as the Dollar strengthened, testing primary support at $1100/ounce. 13-Week Twiggs Momentum peaks below zero indicate a strong (primary) down-trend. Follow-through below $1080 would signal another decline, with a target of $1000/ounce*.
* Target calculation: 1100 – ( 1200 – 1100 ) = 1000
Gold tremors
A strong dollar and low inflation weaken demand for gold. The spot metal broke medium-term support at $1150/ounce and is headed for a test of primary support at $1100. Another 13-week Twiggs Momentum peak below zero signals continuation of the primary down-trend.
* Target calculation: 1200 – ( 1400 – 1200 ) = 1000
Iron ore headed for the smelter
Bloomberg News quotes Zhu Jimin, deputy head of the China Iron & Steel Association, representing major steel producers, at their quarterly briefing on Wednesday:
“Production cuts are slower than the contraction in demand, therefore oversupply is worsening.”
“China’s steel demand evaporated at unprecedented speed as the nation’s economic growth slowed,” Zhu said. “As demand quickly contracted, steel mills are lowering prices in competition to get contracts.”
Little wonder that bulk commodity prices are falling sharply.
Australian producers have been ramping up production to compensate for lower prices.
But with further production due to come on line, the market looks ready for a meltdown. This from David Llewellyn-Smith at Macrobusiness:
Yes, China is still shutting in supply and is on track for 270 million tonnes this year but it’s not going to drop enough in the future (at the very best down to 200mt) as Roy Hill, Sino, Anglo, Vale and India (and possibly Tonkolili as well) continue the great ramp up, adding another 200mt plus in the next two years even as Chinese steel production keeps falling at 2-3% per year, taking 40mt per annum out of demand….. the total seaborne iron ore market is about to peak and then shrink….
The ASX 300 Metals & Mining Index is testing its 2008 low. Breach appears likely and would offer a target of 1700*.
* Target calculation: 2200 – ( 2700 – 2200 ) = 1700
North America
The S&P 500 respected support at 2050 and is headed for a test of the previous high at 2130 on the back of strong earnings performance. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure but expect strong resistance at 2130. Reversal below 2050 is unlikely, but would warn of another test of primary support at 1870.
* Target calculation: 2000 + ( 2000 – 1870 ) = 2130
A declining CBOE Volatility Index (VIX) indicates market risk is easing.
NYSE short sales remain subdued.
Dow Jones Industrial Average is similarly headed for a test of 18300, with 13-week Twiggs Money Flow rising steeply.
Canada’s TSX 60 continues to test stubborn resistance at 825. Weak 13-week Twiggs Momentum, below zero, indicates the market remains bearish. Breakout would signal an advance to 900, but reversal below the former primary support level at 800 is as likely and would warn of another decline.
* Target calculation: 775 – ( 825 – 775 ) = 725
Europe
Germany’s DAX is testing resistance at 11000. Recovery of 13-week Twiggs Money Flow above zero indicates medium-term buying pressure. Breakout above the descending trendline would suggest another test of the previous high at 12400. Expect stubborn resistance, however, and reversal below 10000 would warn of another decline.
The Footsie is similarly testing resistance at 6500. Breakout above the descending trendline would suggest another test of the previous high at 7100. 13-Week Twiggs Money Flow troughs above zero indicate long-term buying pressure. Reversal below 6250 is unlikely, but would warn of another test of primary support at 6000.
Asia
The Shanghai Composite Index continues to test resistance at 3500. Respect is likely and would indicate a re-test of government-backed support at 3000.
Hong Kong’s Hang Seng Index is retracing to test support at 22500. Respect would indicate a rally to 24000, but failure remains as likely and would test primary support at 21000. A 13-week Twiggs Money Flow trough above zero would indicate (long-term) buying pressure.
Japan’s Nikkei 225 is testing resistance at 19000. Breakout would signal another test of 21000. Respect is less likely, but would warn of another test of primary support at 17000.
* Target calculation: 19000 + ( 19000 – 17000 ) = 21000
India’s Sensex encountered resistance at 27500. Rising 13-week Twiggs Money Flow troughs above zero indicate long-term buyiong pressure. Expect another test of 26500 but respect is likely and would indicate continuation of the rally. Reversal below 26500 would warn of another (primary) decline.
* Target calculation: 25000 – ( 27500 – 25000 ) = 22500
Australia
The ASX 200 is retracing to test medium-term support between 5200 and 5300. Reversal of 21-day Twiggs Money Flow below its rising trendline indicates (medium-term) selling pressure; decline below zero would strengthen the signal. Breach of 5200 would warn of another test of primary support at 5000. Recovery above the descending trendline is unlikely at this stage, but would suggest another test of 6000.
* Target calculation: 5000 – ( 5400 – 5000 ) = 4600
Low inflation and a stronger dollar indicate weak gold
Growth in hourly manufacturing earnings has climbed above the Fed target of 2.0 percent, while core CPI continues to track near the target. But the 5-year breakeven rate (5-year Treasury minus TIPS yield) is close to 1.0 percent. The market expects inflation to fall over the next few years.
The reasoning is straight-forward: the end of the infrastructure boom in China and slowing economic growth means low energy and commodity prices for the foreseeable future. Slow credit growth in the West will also act as a brake on aggregate demand, maintaining downward pressure on CPI.
Long-term interest rates are low, with 10-year Treasury yields testing support at 2.0 percent. Declining 13-week Twiggs Momentum, below zero, suggests further weakness.
The Dollar Index rallied off support at 93. A higher trough indicates buying pressure. Breakout above 98 would suggest another advance.
Gold
A strong dollar and low inflation would weaken demand for gold. Spot gold is testing medium-term support at $1150/ounce. Breach would warn of a test of the primary level at $1100. 13-Week Twiggs Momentum is rising, but a peak below zero would signal continuation of the primary down-trend.
* Target calculation: 1200 – ( 1400 – 1200 ) = 1000
Crude testing support
Crude futures (Light Crude December 2015 – CLZ2015) are testing support at $44.50 per barrel. Follow-through below $44.00 would signal another test of primary support at $40. Supply continues to exceed demand with the Saudis and Russians cranking up production and cutting prices to secure key markets in the US and China. Breach of $40 would offer a (long-term) target of $30*. Recovery above $50 per barrel is most unlikely unless there is a serious disruption to supply.
* Target calculation: 40 – ( 50 – 40 ) = 30
Oil market showdown: can Russia outlast the Saudis?
Dalan McEndree writing in Oilprice.com :
While the sharp decline in crude prices has saved crude consuming nations hundreds of billions of dollars, the loss in revenues has caused crude exporting countries intense economic and financial pain. Their suffering has led some to call for a change in strategy to “balance” the market and boost prices. Venezuela, an OPEC member, has even proposed an emergency summit meeting.
In practice, the call for a change is a call for Saudi Arabia and Russia, the two dominant global crude exporters, which each daily export over seven-plus mmbbls (including condensates and NGLs) and which each see the other as the key to any “balancing” moves, to bear the brunt of any production cuts…….
Despite the intense pain they are suffering in the low price Crudedome, both the Russian and Saudi governments profess for public consumption that they are committed to their volume and market share policies.
This observer believes the two countries cannot long withstand the pain they have brought upon themselves — and this article only scratches the surface of the negative impact of low crude prices on their economies. They have, in effect, turned no pain no gain into intense pain no gain and set in motion the possibility neither will exit the low price Crudedome under its own power.
Read more at Oil market showdown: can Russia outlast the Saudis? | Oilprice.com
Gold breaks trendline
Treasury yields remain weak, with the 10-year yield testing support at 2.0 percent. Declining interest rates improve demand for gold but a subdued inflation outlook has the opposite effect.
The Fed has stopped QE, with total assets leveling off around $4.5 Trillion. Expansion of excess bank reserves on deposit with the Fed, which softened the inflationary impact of QE, halted a little earlier.
The latter is contracting at a slightly faster pace, so the net effect (change in Total Assets minus Excess Reserves) remains stimulatory. Reversal below zero on the chart below would warn of a contraction.
The Dollar is weakening in line with interest rates, with the Dollar Index headed for a test of support at 93. 13-Week Twiggs Momentum crossed below zero, warning of a primary down-trend. Breach of primary support at 93 would confirm.
A weaker Dollar would drive up gold. Spot gold broke its long-term descending trendline and is headed for a test of resistance at $1200/ounce. Recovery of 13-week Twiggs Momentum above zero would suggest a primary up-trend, but it would be prudent to wait for confirmation from a trough above zero and breakout above $1200.
* Target calculation: 1200 – ( 1400 – 1200 ) = 1000
Crude: Another bear rally
Crude futures (Light Crude November 2015 – CLX2015) are testing resistance at $50 per barrel. Respect is likely and would indicate another test of support at $40. Breach of medium-term support at $44 would confirm. Failure of $40 would offer a (long-term) target of $30*. Recovery above the descending trendline and resistance at $52 per barrel is unlikely, but would suggest that a bottom is forming.
* Target calculation: 40 – ( 50 – 40 ) = 30