Falling copper prices reflect a weakening Chinese economy. Follow-through below $6600/tonne, after breaching primary support at $6800, signals a primary down-trend.
Commodities retrace
The Dow Jones-UBS Commodity Index is retracing to test its new support level at 134. Respect would confirm the primary up-trend, signaled by the earlier breakout and recovery of 13-week Twiggs Momentum above zero. But a falling Shanghai Composite Index warns of weakening demand. Reversal below 134 would suggest a bull trap.
* Target calculation: 128 + ( 128 – 122 ) = 134
Dollar falls: Outflow to safe haven?
Rising gold prices would normally signal increased inflation expectations and higher Treasury yields, but the present situation is distorted by tensions in Ukraine and increased demand for gold as a safe haven. The yield on ten-year Treasury Notes found support at 2.60 percent and is now testing medium-term resistance at 2.80 percent. Breakout would indicate an advance to 3.50 percent*; confirmed if there is follow-through above 3.00 percent. Bearish divergence on 13-week Twiggs Momentum continues to warn of weakness and reversal below 2.60 remains as likely, testing primary support at 2.50 percent.
* Target calculation: 3.00 + ( 3.00 – 2.50 ) = 3.50
Rising Treasury yields and a weakening dollar may reflect international outflows from the Dollar in search of a safe haven. The Dollar Index is testing primary support at 79.50/79.60. Breach would signal a primary down-trend; confirmed if support at 79.00 is broken. The 13-week Twiggs Momentum peak below zero suggests further weakness.
* Target calculation: 79.5 – ( 81.5 – 79.5 ) = 77.5
Gold signals up-trend
Spot gold encountered resistance at $1350/ounce. Retracement that respects $1300 and the rising trendline would suggest an advance to $1400. Crossover of 13-week Twiggs Momentum above zero indicates a primary up-trend, especially following a bullish divergence on the weekly chart. Breakout above $1400 would confirm the signal, but still seems a long way off.
The Gold Bugs Index is similarly testing resistance at 250. Breakout would signal an advance to 280. Again, bullish divergence on 13-week Twiggs Momentum and crossover above zero indicate a primary up-trend. Reversal below 210 is unlikely, but would warn of continuation of the down-trend.
Gold rallies as stocks hesitate
Spot gold continued its rally, as stocks hesitate, and is likely to reach $1400/ounce before encountering strong resistance. Bullish divergence on 13-week Twiggs Momentum strengthens the signal and recovery above zero would indicate a primary up-trend. Breakout above $1400 would confirm the signal, but seems a long way off.
Gold rally
Spot gold is likely to rally to $1400/ounce before encountering strong resistance, from patient sellers. Bullish divergence on 13-week Twiggs Momentum strengthens the signal. Momentum breakout above zero would suggest a primary up-trend, but breach of $1400 seems a long way off. Retracement that respects new support at $1250 would strengthen the rally.
Crude and commodities signal recovery
The Dow Jones-UBS Commodity Index followed through above resistance at 128, after breaking its descending trendline, completing a double bottom reversal with a target of 134*. Breakout above 134 would confirm a primary up-trend.
* Target calculation: 128 + ( 128 – 122 ) = 134
Nymex Light Crude followed, completing a large double bottom reversal, with a target of $110/barrel*. Recovery of 13-week Momentum above zero indicates a primary up-trend. Brent crude continues to range between $106 and $112/barrel.
* Target calculation: 100 + ( 100 – 90 ) = 110
Rising commodity prices suggest that the global economy is recovering, but copper (widely considered a bellwether for the global economy) has yet to follow. Bullish divergence on 13-week Twiggs Momentum favors an upward breakout. Breakout above $7500/tonne (and the descending trendline) would signal a primary up-trend.
Gold follows through
The Gold Bugs Index followed through above 225 after breaking its descending trendline, suggesting that a bottom is forming. Bullish divergence on 13-week Twiggs Momentum strengthens the signal. Reversal below 210 is unlikely, but would re-test primary support at 190.
Spot gold similarly followed-through above 1280, suggesting a bottom. Again, bullish divergence on 13-week Twiggs Momentum strengthens the signal. Another retracement to find support is likely before there is a serious attempt at the September 2013 high of 1430, which would complete a large double bottom. Reversal below 1240 is unlikely, but would warn of another test of primary support at 1180.
Silver is likely to follow gold. Breakout above $20.50 would suggest another test of $25.00/ounce.
Crude double bottom
Nymex Light Crude is testing resistance at $100/barrel. Breakout would complete a double bottom reversal, offering a target of $108/barrel*. Respect of resistance, however, would suggest another test of primary support at $92. Recovery of US stocks would lift crude prices in anticipation of increased demand. Brent crude is more directionless, affected by both UK North Sea supply concerns as well as reports of increased output from Libya.
* Target calculation: 100 + ( 100 – 92 ) = 108
Commodities follow Shanghai Composite
Copper prices, bellwether for the global economy, have been consolidating in a narrow band for almost a year. Breakout above $7500/tonne (and the descending trendline) would indicate a primary up-trend. Reversal below support at $6800/tonne, however, would offer a target of $6000. Narrow oscillation of 13-week Twiggs Momentum around zero reflects the current indecision.
The monthly chart below illustrates how the Shanghai Composite Index tends to lead broad commodity prices by up to 12 months. The Dow Jones-UBS Commodity Index is testing its descending trendline, but another decline on the Shanghai Index would likely cause further weakness. Recovery above 135 is unlikely at present, but would suggest a primary up-trend.
