Commodities recovering

Rising commodity prices reflect a rosier global outlook.

Breakout of the Dow Jones – UBS Commodity Index above its ascending triangle would signal a primary up-trend and a bullish outlook for the global economy.

Dow Jones - UBS Commodity Index

ASX rally faces strong resistance

The ASX 200 found strong support at 6000, rallying strongly to test resistance at the recent high of 6150.

ASX 200

The recovery was assisted by banks, with the ASX 300 Banks index rallying to test resistance at 8500. Shallow Trend Index troughs below zero reflect improved buyer sentiment (still bearish but only just).

ASX 300 Banks

Miners are correcting as iron ore continues to lose ground.

ASX 300 Metals & Mining

Sentiment has been buoyed in recent weeks by global bullishness towards equities. But Friday’s US reaction to rising wage rates warns that the market is growing increasingly anxious about high stock valuations. Expect strong resistance for the ASX 300 Banks Index at 8500 and the ASX 200 at 6150.

ASX struggles with resistance

Bulls were baited with a third ASX 200 breakout above resistance at 6000, only to see the index retreat yet again. Declining Money Flow warns of commitment from sellers. Breach of support at 5920 would confirm a correction already signaled by Money Flow (21-day) crossing to below zero.

ASX 200

The ASX 300 Retailing Index is weak, anticipating a poor Christmas.

ASX 300 Retailing

But Food & Staples Retailing is strengthening.

ASX 300 Food & Staples Retailing

ASX 200 direction, however, is largely determined by Banks and Miners.

The bear-trend on iron ore is weak, with the bulk commodity continuing its test of resistance at 70. Respect would warn of another decline, while breakout above 80 would signal a primary up-trend.

Iron Ore

The ASX 300 Metals & Mining Index, however, shows signs of selling pressure, with Money Flow (21-day) declining to zero. Breach of support at 3300 would warn of a correction.

ASX 300 Metals & Mining

Banks continue to disappoint, with the ASX 300 Banks index headed for a test of short-term support at 8250. Twiggs Trend Index peaks below zero indicate continued selling pressure. Breach of 8250 is likely and would warn of a test of primary support between 8000 and 8100.

ASX 300 Banks

ASX still tentative

The ASX 300 Metals & Mining Index retraced to test support at 3300. Breach is still unlikely but would warn of a correction.

ASX 300 Metals & Mining

Iron ore strengthened to test the declining trendline but respect of resistance at 70 would warn of a continued down-trend. Breakout above 80 would signal reversal to a primary up-trend but that is unlikely if China continues to rein in bank and shadow bank lending.

Iron Ore

The ASX 300 Banks index broke support at 8500 and is expected to test primary support between 8000 and 8100. The sector faces headwinds from slowing development and falling prices, especially in high-density apartments. Recent Trend Index peaks at/below zero warn of long-term selling pressure.

ASX 300 Banks

Banks are the biggest sector in the broad ASX 200 index which retreated below resistance at 6000. Failure of short-term support at 5920 would signal a correction. The ASX 200 exhibits a tentative up-trend but bearish divergence on the Trend Index warns of long-term selling pressure.

ASX 200

Rising crude lifts all commodities?

Crude is rising, with Nymex Light Crude respecting its new support level at its former two-year high of $54/barrel, indicating a primary advance.

Nymex Light Crude

The general rule is that rising crude prices lift all commodities. Crude prices are a major factor in commodity prices due to the high energy costs of extraction (hard commodities), cultivation (soft commodities) and transport (both hard and soft).

The broad DJ-UBS Commodity Index is retracing but likely to respect the rising trendline, with a rally testing resistance at 90.

DJ UBS Commodity Index

Copper also shows some weakness at present but respect of primary support at 6400 would confirm the up-trend.

Copper Grade A

Iron ore is headed in the opposite direction, however, as the Chinese real estate market slows. But expect strong support between $48 and $54/tonne, especially if the rise in crude prices continues.

Iron Ore

Even gold prices tend to rise and fall in unison with crude over the long-term.

Crude retraces

Nymex Light Crude is retracing to test its new support level at the former two-year high of $54.50/barrel. Respect would confirm the primary advance.
Nymex Light Crude

Brent crude is similarly retracing, to test support around $60/barrel.

Brent Crude

Broad commodity prices are likely to follow crude, with the DJ-UBS Commodity Index heading for resistance at 90.

DJ UBS Commodity Index

Iron ore is more susceptible to cycles in the Chinese real estate market but is likely to respect primary support at $52.50/tonne.

Iron Ore

Even gold is likely to benefit in the long-term if crude prices rise.

Crude breakout warns of commodity rise

Most significant news of the week was Nymex Light Crude breaking resistance at its two-year high of $54.50/barrel, signaling a primary advance. Retracement that respects the new support level would confirm the up-trend.

Nymex Light Crude

The next major resistance level is at $60/barrel, shown on the 5-year chart below.

Nymex Light Crude

The breakout follows Brent crude’s earlier breakout above $55, signaling a primary up-trend.

Brent Crude

Crude prices are a major factor in commodity prices due to the high energy costs of extraction (hard commodities), cultivation (soft commodities) and transport (both hard and soft). Rising crude prices are likely to cause a broad rise in commodity prices, with the DJ-UBS Commodity Index testing resistance at 90.

DJ UBS Commodity Index

Iron ore is more susceptible to cycles in the Chinese real estate market but is likely to find support above $50/tonne if crude prices rise.

Iron Ore

Even gold would be likely to benefit as gold and crude prices tend to rise and fall in unison over the long-term.

ASX and the Aussie Dollar

The Aussie Dollar broke support against the US Dollar at 77 cents, warning of a decline to test long-term support between 71.50 and 72.00.

Aussie Dollar

Iron ore continues to test new resistance at $62/tonne. Respect would warn of a test of primary support at $53. Declining Twiggs Trend Index indicates selling pressure.

Iron ore

The ASX 300 Metals & Mining index fared better, testing resistance at its three-year high of 3300. But the index is likely to follow iron ore lower. Breach of support at 3100 would warn of a decline to 2700.

ASX 300 Metals and Mining

The ASX 300 Banks index retreated from resistance at 8800. Respect warns of another test of primary support at 8000.

ASX 300 Banks

If banks and miners are both headed in the same direction, the index is sure to follow.

The ASX 200 continues to test resistance at 5900. Follow-through above 5920 would be a strong bull signal, indicating an advance to 6000. Reversal below 5880 would suggest retracement to test the new support level at 5800 (top of the narrow ‘line’ formed over the last four months). Twiggs Money Flow reversal below zero would be a bearish sign.

ASX 200

Despite the falling Dollar and iron ore, the present outlook continues to favor the bull side.

ASX 200 meets resistance as miners retreat

The ASX 300 Metals & Mining index breached its new support level at 3300, warning of a bull trap. Penetration of the rising trendline would test primary support at 3100.

ASX 300 Metals and Mining

The divergence between iron ore and miners was bound to end and a correction of the Metals & Mining index is now likely. Iron ore below support at $62 warns of a test of primary support at $53. Declining Twiggs Trend Index signals selling pressure.

Iron ore

The ASX 200 encountered resistance at 5900. Retracement is likely to test the new support level at 5800 (top of the narrow ‘line’ formed over the last four months). Twiggs Money Flow reversal below zero would be a bearish sign.

ASX 200

The ASX 300 Banks index are testing resistance at 8800. Respect of resistance would warn of another test of primary support at 8000.

ASX 300 Banks

If banks and miners both turn bearish, the index is likely to follow.

Bank rally boosts the ASX

Banks rallied, with the ASX 300 Banks index breaking 8500 to signal another test of resistance at 8800. Breakout above 8800 would signal resumption of the primary up-trend but expect retracement to first test the new support level. I will remain wary of banks until the support level is respected.

ASX 300 Banks

The bank rally helped to lift the ASX 200 above resistance at 5800 — from the narrow ‘line’ formed over the last four months. Breakout signals another primary advance but again wait for retracement to respect the new support level. Respect would confirm a test of the 2015 high at 6000. Twiggs Money Flow peaks below zero still warn of long-term selling pressure. Reversal below 5800 would mean all bets are off.

ASX 200

On a more bearish note, iron ore is heading for a test of primary support at $53. Declining Twiggs Trend Index signals selling pressure. Breach of primary support would spell trouble for the miners.

Iron ore

The ASX 300 Metals & Mining index rally continues but another test of 3100 is likely. Breach of 3100 would most likely drag the ASX 200 (and banks) lower.

ASX 300 Metals and Mining

ASX 200 selling pressure continues

Iron ore found short-term support at $62 after a sharp fall. Declining Twiggs Trend Index signals selling pressure. Breach of $62 is likely and would warn of a test of the June 2017 low at $53.

Iron ore

Decline of ASX 300 Metals & Mining index similarly halted at 3100. Respect of 3000 would confirm the long-term up-trend.

ASX 300 Metals and Mining

The ASX 300 Banks index is consolidating below resistance at 8500. Respect of resistance would be a bearish sign, as would another Trend Index peak below zero. Breach of 8000 would signal a primary down-trend.

ASX 300 Banks

The ASX 200 continues to test support at 5650, in the narrow ‘line’ formed over the last four months. Trend Index peaks below zero warn of selling pressure. Breach of support at 5650 is likely and would signal a primary decline. But wait for breakout to confirm.

ASX 200

ASX 200 selling pressure as iron ore falls

Iron ore is falling in a sharp, typical bear market decline since it penetrated its rising trendline. A test of the June 2017 low at $53 is now likely.

Iron ore

The ASX 300 Metals & Mining index broke support at 3200 and looks set to test 3000. But respect of 3000 would confirm the long-term up-trend.

ASX 300 Metals and Mining

The ASX 200 continues to test support at 5650, in the narrow ‘line’ formed over the last four months. Twiggs Trend Index peaks below zero warn of selling pressure. Breach of support is likely and would signal a primary decline. Wait for confirmation from a breakout.

ASX 200

The ASX 300 Banks index is testing resistance at 8500 after a bear market rally. Respect would be a bearish sign and breach of 8000 would signal a primary down-trend. Recovery above 8800 is unlikely at present but would complete a double-bottom reversal.

ASX 300 Banks

Banks and Mining have so far counter-balanced each other, with miners rallying when banks fall and banks rallying when miners fall. Breakout of the ASX 200 from its narrow line is likely to occur when both banks and miners move in the same direction. Down is more likely at present.

ASX 200 selling pressure as iron ore corrects

Iron ore penetrated its rising trendline, signaling a correction. A trough that forms above the June 2017 low would be bullish for miners.

Iron ore

That seems likely given rising crude steel output in China.

China Output

The ASX 300 Metals & Mining index is testing support at 3200. Breach is likely and would signal a test of 3000. But respect of 3000 would confirm the long-term up-trend.

ASX 300 Metals and Mining

The ASX 300 Banks index rallied off support at 8000. Respect of resistance at 8500 would be a bearish sign and breach of 8000 would signal a primary down-trend. Recovery above 8800 is unlikely at present but would complete a double-bottom reversal.

ASX 300 Banks

The ASX 200 continues to consolidate in a narrow line between 5650 and 5800 but the tall shadow on this week’s candle and Twiggs Trend Index troughs below zero both warn of selling pressure. Breach of support would signal a primary decline, but direction remains uncertain until there is a clear breakout.

ASX 200

ASX 200 Narrow Line

The ASX 200 continues to consolidate in a narrow line between 5650 and 5800. Declining Twiggs Money Flow warns of selling pressure and breach of support at 5650 would signal a primary down-trend. Follow-through below 5600 would confirm. Breakout above 5800 is unlikely but would test resistance at 6000.

ASX 200

Monthly hours worked are up 1.9% over the last 12 months. Marginally below real GDP but not something to be concerned about unless growth continues to fall.

Monthly Hours Worked - Seasonally Adjusted

Iron ore continues its extended bear market rally, suggesting that the next correction is likely to find support above the primary level at 53.

Iron Ore

ASX 300 Metals & Mining is also likely to find support above 2750. Respect of support at 3000 would signal a strong up-trend.

ASX 300 Metals & Mining

The ASX 300 Banks index continues to warn of selling pressure, with declining Twiggs Trend Index and Money Flow below zero. Breach of support at 8500 would signal another test of primary support at 8000.

ASX 300 Banks

ASX banks spoil the iron ore party

I underestimated the strength of iron ore which has now broken resistance at 70, suggesting that a bottom is forming. Strength of the latest rally indicates that the next correction is likely to find support at 60.

Iron Ore

The Resources sector responded, with the ASX 300 Metals & Mining index headed for a test of its February high at 3200 after recovering above support at 3000.

ASX 300 Metals & Mining

Banks have been on the receiving end, however, with the ASX 300 Banks index testing short-term support at 8500. A Twiggs Money Flow peak below zero warns of strong selling pressure. Breach of 8500 would signal another test of primary support at 8000.

ASX 300 Banks

The ASX 200 continues to form a narrow line, consolidating between 5600 and 5800. Declining Twiggs Money Flow, with a peak below zero, warns of selling pressure. Breach of support at 5600 remains likely, despite the iron ore rally, and would signal a primary down-trend.

ASX 200

ASX stalls

Iron ore is testing resistance at 70. Respect would warn of another test of primary support at 53, while breakout would suggest that a bottom is forming and the next correction is likely to find support at 60.

Iron Ore

The Resources sector remains wary, with the ASX 300 Metals & Mining index retreating after a false break above resistance at 3050.

ASX 300 Metals & Mining

The ASX 300 Banks index retraced from resistance at 8800, heading for a test of the rising trendline and short-term support at 8500. Twiggs Money Flow continues to warn of selling pressure despite indications from APRA that they are unlikely to require further capital raising. Reversal below 8500 would warn of another test of primary support at 8000.

ASX 300 Banks

The ASX 200 has stalled, consolidating between 5600 and 5800 over the last two months. Declining Twiggs Money Flow, with a peak below zero, warns of selling pressure. Breach of support at 5600 is more likely, with an ensuing down-trend, but a lot depends on how iron ore behaves in the next few weeks.

ASX 200

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.

~ Mark Twain (Samuel Clemens)

ASX 200: It’s down to iron ore

Iron ore encountered resistance at $70 per ton. Another test of primary support at $53 is likely. But a failed down-swing would be a bullish sign.

Iron Ore

The ASX 300 Metals & Mining displays a similar pattern, retreating below 3000 after testing 3050. A failed down-swing that ends above 2750 would be a bullish sign, while breach of support at 2750 would confirm the primary down-trend.

ASX 300 Metals & Mining

APRA eased pressure on the big four banks to raise more capital; the ASX 300 Banks index responding with a rally to 8800. Retracement that respects support at 8500 would be a bullish sign, signaling continuation of the up-trend. The industry is still light on capital but recent remarks by APRA chair Wayne Byres indicate that they are prepared to tolerate a more gradual adjustment rather than a new round of capital raising. Dividends may still come under pressure, however, in banks with high payout ratios.

ASX 300 Banks

ASX 200 consolidation between 5600 and 5800 continues. Declining Twiggs Money Flow flags selling pressure. Breakout from the consolidation will indicate future direction but this is likely to be dominated by mining (iron ore) and the banks. If both are pulling in the same direction, the index is likely to follow. Banks are increasingly bullish but the question-mark over iron ore remains.

ASX 200

ASX buoyant as iron rallies

Iron ore broke resistance at $60 and is headed for a test of $70 per ton. This is a strong rally but it does not signal the end of the bear market. Only when the rally ends and there is another test of primary support at $53 will we be able to gauge long-term sentiment.

Iron Ore

The ASX 300 Metals & Mining index broke resistance at 3000, completing a double bottom reversal with a target of 3250. Breach of 2750 is unlikely at present but would signal a primary down-trend.

ASX 300 Metals & Mining

The ASX 300 Banks index is testing resistance at 8500 but Twiggs Money Flow below zero continues to warn of long-term selling pressure. Breach of 8000 remains likely and would confirm the primary down-trend.

ASX 300 Banks

The ASX 200 is consolidating in a small triangle (some would call this a large pennant) between 5600 and 5800. Breakout will signal future direction. A lot will depend on iron ore (China) and the banks, which seem to be pulling in opposite directions at present.

ASX 200