Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

How Commodity Charts Are Reacting, or Not, to China Currency News

Commodities / Commodities Trading Jun 21, 2010 - 01:25 PM GMT

By: Mike_Paulenoff

Commodities

Best Financial Markets Analysis ArticleNews that China will re-value its yuan currency is viewed positively, of course, by world markets as it lowers inflation risk and exudes confidence about China’s growth picture.

After an initial higher opening on Monday, what can be expected? The daily chart on the Shanghai is hardly a bullish chart, and in fact went down 3% on Friday. Does the news now invalidate this chart? I don’t know, but to even begin to look exciting, the index has to take out 2600, or 3 1/2% from Friday’s close at 2514, and then faces stiff resistance at around 2800.


The S&P 500, meanwhile, needs to get through its 50% Fibonacci retracement of the April-June decline, which comes in at 1130, and then take out its 50-day moving average at 1139-40, or 2% from Friday’s close. If it runs out of gas at the 50% Fib retracement, then it might well test the 200-day moving average at 1110.

One thing for sure is that if the Chinese situation is the bellwether of a start of a new up-cycle in the global economy, or the renewal of an up-cycle, then commodities will have to move. So, let's take a look at the commodities.

Copper and Gold

Looking first at the copper situation, the iPath DJ-UBS Copper TR Sub-Idx ETN (JJC) appears to have a very big distribution top pattern with the resistance level at around 38.56 upwards to about the 42.83-43 zone.

If the market is supposed to be a discounting mechanism, then it would seem as though copper would have made a move near the 40.16-40.86 area. Instead, copper had a very tough Wednesday, Thursday, and Friday of last week, and seems to be struggling. In addition, it’s below its relative moving averages, and in fact, those who watch the 200- and 50-day interaction are seeing a kind of death-cross happening, where the 50-day is about to cross under the 200-day, which is a very tricky situation.

It seems as though copper, as a discounting mechanism, did not see the Chinese situation coming or it would have been prepared, since the Chinese would have been buying up copper before they made the announcement. Copper needs to show some sign that global supply/demand and global growth is improving, and right now that’s not what the chart is showing.

Freeport-McMoRan Copper & Gold Inc. (FCX) shows a very similar picture. In the last couple weeks FCX has pretty much struggled because it’s seen as a copper producer in a sluggish US and global economic environment.

To get any traction on the upside, Freeport will have to take out 71.50, or 8 1/2% above where it closed Friday, at 65.90.

Freeport should have been a lot higher based on the anticipation of the China currency move. As a discounting mechanism both JJC and FCX are giving every indication that the China news is more words than action.

Steel

Steel, as represented by the Market Vectors Steel ETF (SLX), doesn't look much better than copper. It looks to be a distribution top that has tested and so far has held the 52 to 54 area. If there’s an upward move in steel and the SLX, then it will get into the 61 1/2 area and test the declining 50-day, which would be about a 6 1/2% move from its Friday close at 58.09.

Looking at United States Steel Corporation (X), we can see a troubled situation. If it pops, it could get back to 49, but it has a bigger top than the top on the SLX, and between the two, it doesn’t appear as though China's situation is the solution for either one or the steel sector in general.

Nucor Corporation (NUE), also in the steel sector, has a suspect-looking chart. Can it rally to 43 1/2 - 44 from 41, or 8% to 10%. Possibly. Whether or not it can get through that level is another thing. If it breaks 40, down to 39, it’s going to be a dicey situation for Nucor. So, that's another suspect, discounting chart mechanism for what may be considered the start of another bull move triggered by the China news.

Cliffs Natural Resources Inc. (CLF) had some big swings as of late. But as long as the 200-day holds any weakness, which it has done so far, it could be an indication that something is going on that could drive it higher. Right now it has a sharply declining 50-day moving average at 59.48, which it could test on a reaction rally to the China news.

But if these commodities do gap up, can we afford to chase them? Cliffs has a better looking chart than the previous ones, but it, too, looks like it has limited upside.

Silver

The chart on silver is more compelling than copper and steel, as the iShares Silver Trust (SLV) is still trying to make new highs. The SLV looks strong, with rising lows and higher highs. If it can take out 20, then it may have some momentum on the upside, and the gold- silver ratio will start to move in favor of silver -- that is, it will narrow.

If that happens, we must seriously consider that the China news as being embraced by the commodity sector, and silver is the beneficiary of that even if copper doesn’t look so hot.

Pan American Silver Corp. (PAAS) is very volatile. I got out of it, as the market was buying gold rather than silver in its flight to safety. But right now, with silver appearing to be back on the upside, we’ll have to see if PAAS can get through the 28 1/2 area to the top of the channel at 32.50 or so. That could be a good move.

Australia

If China is coming back strong, or perceived to be rekindled in a big way, you would think Australia would be one of the first places to rocket because Australia sells so much into China.

The iShares MSCI Australia Index (EWA) doesn't look that bad, though needs to do some work. It has some serious resistance between 22 and 24, which we need to watch closely as the Australian market responds to the China news.

BHP Billiton Ltd. (BHP), a representative of this market, too, has strong resistance at the 50-day at 69 1/2 and then at 70 3/4 to 71 that we’ll be watching.

Aluminum, Fertilizer, Heavy Equipment, Materials

Alcoa, Inc. (AA), representing the aluminum side of things, is hardly a picture where anyone is buying this as a discounting mechanism for China. This is one sorry-looking chart, consolidating under the neckline for yet another breakdown at 8 or 9, and, of course, the next round of earnings is already approaching, due to come out July 12th.

Potash Corp. of Saskatchewan, Inc. (POT), procurers of fertilizer, is hardly the kind of chart that is inspiring either. It needs to get over the 106-106.50 area.

Bucyrus International Inc. (BUCY), a company that manufactures equipment, is impacted by China since China needs their product. This is another uninspiring picture, with a big distribution top, and it had better rally through the declining 50-day at 57.80 and 200-day at 51 and change, which would be a 13% -14% range. It looks like it has a bearish consolidation and if it can’t get over 55, it’s actually telling us that it has another down leg off the distribution top.

Finally, the Materials Select Sector ETF (XLB) has been in a top or trading range between 29.30 and 35. A break of 32 could be an indication that some dynamic things are happening as a result of the Chinese decision on the currency.

So, the China story is an important one, either because it helps inspire some of these charts, or because it inspires volatility, causing upgaps that only lead to downside reversals. We’ll certainly know soon.

Sign up for a free 15-day trial to Mike's ETF & Stock Trading Diary today.

By Mike Paulenoff

Mike Paulenoff is author of MPTrader.com (www.mptrader.com), a real-time diary of his technical analysis and trading alerts on ETFs covering metals, energy, equity indices, currencies, Treasuries, and specific industries and international regions.

© 2002-2010 MPTrader.com, an AdviceTrade publication.  All rights reserved. Any publication, distribution, retransmission or reproduction of information or data contained on this Web site without written consent from MPTrader is prohibited. See our disclaimer.

Mike Paulenoff Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules