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.
Weekly highlights:
The tenuous ceasefire in Eastern Ukraine appears to be holding, but Europe faces another challenge this week, with a Scottish referendum on independence. Predictions of financial mayhem in the event of a “Yes” vote are, I feel, exaggerated in an attempt to influence the outcome. The official position of the UK government is:
“If a majority of those who vote want Scotland to be independent then Scotland would become an independent country after a process of negotiations.”
The “process of negotiations” is likely to be comprehensive and would resolve most outstanding uncertainties in an orderly fashion. There has been much debate over economic issues, but it is no coincidence that the referendum is being held in the same year as the 700th anniversary of the Battle of Bannockburn, when Scots under Robert the Bruce defeated an English army led by Edward II to regain their independence.
Dow Jones Euro Stoxx 50 remains hesitant, retreating from resistance at 3300. Consolidation above 3200 would be a bullish sign, while breach of 3100 would threaten primary support at 3000. Another 13-week Twiggs Money Flow trough above zero would indicate buying pressure, but reversal below zero would warn of a down-trend.
* Target calculation: 3300 + ( 3300 – 3000 ) = 3600
The S&P 500 is edging lower and follow-through below 1980 would indicate another correction. Respect of support at 1950, however, would suggest that the up-trend is intact. Sideways movement on 21-day Twiggs Money Flow, reflects further consolidation.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) below 20 is typical of a bull market.
China’s Shanghai Composite Index breakout above 2250 signals a primary up-trend. The monthly chart, however, reflects further resistance at 2450/2500*. Rising 13-week Twiggs Money Flow indicates accelerating buying pressure. Reversal below 2250 is most unlikely, but would suggest further consolidation between 2000 and 2250.
* Target calculation: 2250 + ( 2250 – 2000 ) = 2500
The ASX 200 broke support at 5540/5560, warning of a correction. Bearish divergence on 21-day Twiggs Money Flow indicates medium-term selling pressure. Respect of support at 5440/5460 would indicate that the primary up-trend is intact, while a fall below 5360 would warn of a down-trend.
* Target calculation: 5650 + ( 5650 – 5450 ) = 5850
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.
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.
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.
Crude oil prices are falling. Nymex Light Crude broke support at $98/barrel, signaling a test of primary support at $92/barrel, while Brent Crude is testing primary support at $104. Retreat of 13-week Twiggs Momentum below zero already warns of a Nymex (CL) down-trend.
Commodity prices are being dragged down, with Dow Jones-UBS Commodity Index heading for a test of primary support at 122. Reversal of 13-week Twiggs Momentum below zero strengthens the bear signal.
Copper prices are also testing primary support, reflecting a weak Chinese economy. Breach of $6800/tonne would warn of a primary decline. Follow-through below $6400/tonne would confirm.
The yield on ten-year Treasury Notes is testing support at 2.40 percent. Breach would confirm a primary decline with a target of 2.00 percent*. 13-Week Twiggs Momentum holding below zero strengthens the bear signal. Recovery above 2.50 is unlikely, but would suggest a rally to 2.65/2.70 percent.
* Target calculation: 2.50 – ( 3.00 – 2.50 ) = 2.00
The Dollar Index broke resistance at 81.50, signaling a long-term advance to 84*. Expect retracement to test the new support level. Recovery of 13-week Twiggs Momentum above zero also suggests a primary up-trend. Reversal below 81.00 is unlikely, but would warn of another test of support at 80.00.
* Target calculation: 81.50 – ( 81.50 – 79.00 ) = 84.00
A rising dollar and falling treasury yields both suggest that inflation expectations are falling.
Gold found medium-term support at $1280/$1300, but oscillation of 13-week Twiggs Momentum around zero indicates hesitancy. 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 also be contributing to lower inflation expectations and weaker gold demand as an inflation hedge. Brent Crude breach of $104/barrel would signal a primary down-trend, reducing the possibility of a sustained rise in the gold price.
Crude oil prices are falling sharply. Nymex Light Crude broke support at $98/barrel and Brent Crude is testing support at $104. Breach of that support level would confirm a primary down-trend.
The theory has been bandied about that lower crude prices are a Barack Obama strategy to deter Vladimir Putin in East Ukraine. But there are signs of an economic slow-down in Europe, especially Italy, that would hurt demand for Brent Crude. And the Baltic Dry Index, which reflects bulk commodity shipping rates, indicates global trade is at a low ebb. Whichever is correct, low crude prices are welcome — good for the medium-term outlook of the global economy.
