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 finds support

The ASX 200 found support on Friday after threatening to break support at 5650 earlier in the week. The narrow ‘line’ formed over the last four months continues. Twiggs Money Flow peaks below zero still warn of long-term selling pressure. Breach of support at 5650 remains likely and would signal a primary decline. Breach of support at 5650 would confirm.

ASX 200

Iron ore broke short-term support at $62, signaling a test of primary support at $53. Declining Twiggs Trend Index signals selling pressure.

Iron ore

Strangely, the ASX 300 Metals & Mining index rallied. Breakout above 3300 would confirm a primary up-trend.

ASX 300 Metals and Mining

The ASX 300 Banks index are a major drag on the ASX 200 broad market index. See Australian Banks Under Selling Pressure.

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 miners surge

ASX 300 Metals & Mining broke through resistance at its January/February highs, signaling a primary advance.

ASX 300 Metals & Mining

But iron ore penetrated its rising trendline, suggesting that the rally is losing momentum. The next correction is likely to end above primary support (53). It may be prudent to wait for confirmation from iron ore before going all out on miners.

Iron Ore

The ASX 300 Banks index is headed in the opposite direction and continues to drag on the broad market index. Declining Twiggs Money Flow warns of selling pressure. Expect another test of primary support at 8000; breach would confirm a primary down-trend.

ASX 300 Banks

The ASX 200, pulled in both directions, continues to consolidate in a narrow line between 5650 and 5800. Rising Twiggs Money Flow (21-day) indicates short-term buying pressure and a test of resistance at 5800 is likely. Breakout from the narrow line will signal a primary advance or decline, but direction remains unclear despite the bullish movement from miners.

ASX 200

ASX Improves

The ASX 200 continues to consolidate in a narrow line between 5650 and 5800. Rising Twiggs Money Flow (21-day) warns of short-term buying pressure. Expect a test of resistance at 5800. Breakout would signal a primary advance, testing 6000, but breach of support at 5650 remains as likely and would warn of a primary down-trend.

ASX 200

The large cap ASX 50 is historically less volatile than its S&P 500 counter-part. While the Australian index has some smaller stocks (lowest-weight IPL has market cap of $5.7 bn compared to S&P 500 NWS of $10 bn in AUD) the higher dividend yield tends to compensate. That difference has reversed recently but Twiggs Volatility (21-day) for the ASX 50 is also falling, reaching 0.92% this week.

ASX 50 with Twiggs Volatility

Currency growth remains weak (below 5% per year), indicating that the economy still faces headwinds.

Australia: Currency Growth

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

Iron Ore

ASX 300 Metals & Mining is testing resistance at its January/February highs. Breakout above 3240 would signal a primary advance. Expect some profit-taking but reversal below primary support at 2730 is now unlikely.

ASX 300 Metals & Mining

The ASX 300 Banks index breached support at 8500, however, and continues to drag on the broad market index. Declining Twiggs Money Flow warns of selling pressure. Follow-through below 8400 would confirm another test of primary support at 8000.

ASX 300 Banks

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 200 Selling Pressure

June Quarter retail sales are up 1.4% over the preceding quarter, the best June Quarter since 2012.

Retail Sales

Vehicle sales for June 2017 also reflect healthy growth over previous financial year ends.

Residential Building Approvals

Despite the good figures, one should not ignore Bill Evans’ more sombre assessment of the latest RBA forecasts:

From our perspective, a fall in housing construction; subdued consumer spending and a drag on services exports from the high Australian Dollar will constrain employment growth through 2018. The [Reserve] Bank sees things differently, expecting recently strong employment growth to persist into 2018, with the unemployment rate expected to fall to 5.4% by the end of 2019 compared to our current forecast that the unemployment rate will in fact be rising through 2018, reaching 6% by year’s end.

Two other domestic factors are important, firstly the Bank is of the view that “wage growth is expected to pick up gradually over the next few years”. That is despite convincing evidence offshore, that countries with full employment, and in the case of the US, an unemployment rate considerably below the full employment rate, are not experiencing wage pressures. This different assessment of household income growth is one of the key explanations behind our more downbeat view of the economic outlook. Secondly, we expect that the wealth effect from sharply rising house prices in NSW and Victoria is about to reverse. There is no argument that household debt levels are elevated. The prospect of very limited further increases of house prices in those markets may start to dampen consumer spending in particular by discouraging households to further subsidise consumption growth by lowering their saving rates…..

  • Falling housing construction;
  • Slow consumption growth;
  • Slow services export growth;
  • Slow employment growth;
  • Slow wages growth; and
  • Slowing house price growth.

I think Bill is right on the money, but there are always other variables like iron ore and Chinese financial markets that can disrupt even the best forecasts.

Iron ore looks set to retrace to test support between 68 and 70. Respect would signal a primary advance but I suspect that support at 60 is likely to be tested.

Iron Ore

ASX 300 Metals & Mining is also likely to retrace, but bearish divergence on Twiggs Trend Index warns of selling pressure. Respect of 2950 would signal a primary advance but a test of primary support at 2750 is as likely.

ASX 300 Metals & Mining

The ASX 300 Banks index retreated below support at 8500. Follow-through would test primary support at 8000. Declining Twiggs Money Flow, with a large peak below zero, warns of strong selling pressure.

ASX 300 Banks

Declining Twiggs Money Flow also flags strong selling pressure on the ASX 200. Breach of support at 5650 is likely and would signal a primary down-trend. Follow-through below 5600 would confirm.

ASX 200

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

ASX 200: Banks run into strong resistance

Iron ore peaked at $60. Expect a sharp fall to test support between $50 and $52, typical of a bear market. Chinese housing price growth — a key driver of iron ore prices as illustrated last week — is slowing and likely to drag ore prices lower.

Iron Ore

The ASX 300 Metals & Mining index is still on the up but likely to respect resistance at 3000, given the reversal in iron ore. Breach of 2750 would confirm a primary down-trend.

ASX 300 Metals & Mining

The ASX 300 Banks index ran into strong resistance at 8500. Declining Twiggs Money Flow highlights selling pressure. Breach of 8000 is likely and would confirm the primary down-trend.

ASX 300 Banks

The ASX 200 displays strong selling pressure, with tall shadows on the last two weekly candles. Twiggs Money Flow dipping below zero for the second time warns of a primary down-trend. Follow-through below 5700 would test primary support at 5600. Breach of 5600 would complete a broad head and shoulders reversal, confirming a primary down-trend.

ASX 200

Credit Suisse contrary view on Iron Ore

Where is the Chinese iron ore inventory cycle?

By Houses and Holes at 9:06 am on July 5, 2017
Republished with thanks to Macrobusiness.

From Credit Suisse:

Iron ore turns up, once again confounds bears on the Street

Iron ore once again confounded those calling it down by jumping at the end of June. However, this was predictable. In late May and early June we were hearing anecdotally (Platts) that some steel mills were on-selling contractual cargoes of iron ore to repay quarterly loans due at the end of June. That was a destocking event which inevitably put pressure on the price by adding cargoes to the daily sales list. But by the end of the month, loans were met and destocking is always followed by restocking.

Street still focused on port stocks, China mills are not Iron ore has been nothing if not volatile so it has been a tough call, but the Street keeps getting it directionally wrong, doubling down when the price is sliding. We believe one big difference between the Street’s price forecasts and what actually happens is that analysts are looking at a different side of the supply-demand equation from the actual buyers – Chinese steel mills. The street is obsessed with ever-rising port stocks. These stocks seem a clear indication that iron ore is over-supplied so for commodity analysts, that means the price should fall until some supply is destroyed to restore balance. Therefore, when the iron ore price is rising, analysts publish grim warnings that this can’t last due to too much supply. When the price falls again, the analysts feel validated that they were right, and promptly down grade price forecasts because it’s “the end”. But then the price rises again….

Why do the steel mills keep buying?

China steel mills seem unconcerned about port stocks, although it is not clear why. We do note that steel mills own two thirds of the port stocks anyway (traders the remainder) so perhaps SOEs are taking contractual cargoes, but only using the high grade portions currently while steel prices are so high? They could buy other high grade supply from the traders’ stocks. As we found on our visit to Tangshan mills at the start of May, SOEs have no concerns obtaining bank loans so may not worry about working capital. They may plan to destock later when prices are lower. And interestingly, Mysteel’s survey of around 67 small to medium steel mills which will be private, seem to have normalised inventories rather than any build up. So larger SOEs may be the culprits.

Steel mill buying follows demand, not supply

But if we leave aside the port stocks issue, then steel mills’ buying decisions are based on demand, not supply. The volatile iron ore price is actually reflecting destock-restock cycles by steel mills. One influence on the stock cycles is seasonal and predictable, another is Chinese macro factors, particularly policy decisions and is very difficult or impossible to forecast. Macro factors and seasonal demand periods guide steel mills as to whether steel demand will be strong and prices strong. If it looks promising, they want to buy ore to run flat out. And when one is buying, all start buying to beat the iron ore price peak.

How has this worked in practice?

Seasonally we reached the construction season end in June, so rebar demand should have been lower, and it has been. But equally importantly it was clear from anecdotal reports in Platts that destocking was taking place – mills were dumping contractual cargo deliveries into the spot market, liquidating to raise cash for debt repayments due at the end of June. It is clear that near the end of the month, that would cease as debts were met. Instead, the mills that had sold incoming cargoes would need to go back and buy to continue steel production – restock follows destock. And so it has played out.

As commentators searched for an explanation for the price jump, they latched onto a speech about the economy by President Xi on 27 June that was the only notable macro event. It was not a rip-roaring call by the President, but may have provided reassurance. From Reuters’ reports we see that the President said the full-year growth target could be met, said China was capable of meeting systemic risks despite challenges and noted that maintaining medium to high speed long-term growth will not be easy due to the sheer size of the economy, but the Government is committed to bolstering consumer-driven growth and curbing excess capacity in industries such as steel and coal.

No change to our 3Q price forecast of $70/t

Despite the run-up in the iron ore price it remains below our 3Q price forecast of $70/t. But our call was not based on the end of a short-term destocking cycle. Instead, we are looking towards September and October, which is seasonally a strong period for steel production and consumption – after the summer heat and rain, but before the winter freeze. If steel mills want to be producing strongly in September, they need to be booking iron ore cargoes in late July and August, and these are typically months where the price lifts. June is normally the low point for iron ore, heading into the summer steel demand lull.

Looming winter cuts may add to 3Q iron ore demand

This year there is an additional factor to consider. The Environment Ministry has its widely publicized industrial curtailments planned for 26+2 cities over winter. Smog reaches hazardous levels over Beijing-Tianjin during the winter when coal burn for heating joins the normal industrial smoke. Next winter, a change is planned by reducing industrial emissions from mid-Nov to late-Feb. The steel industry in Hebei, Henan, Shanxi and Shandong is expected to cut output by 50%, If this policy is enforced – and smog is a high priority issue – then steel output may fall by 35-45Mt over the three months. If prices remain high, steel mills will want to keep selling so it might be possible for them to over-produce and build some inventory in 2H. If this is so, then 3Q iron ore buying could be extra strong.

Ahem, not a lot of humility there. CS was telling folks that iron ore was going higher at $94. It was it that missed the destock not the other way around.

Still, there’s some reasonable arguments here. The jump in price triggered by Li’s bland comments was a surprise. Mills have been lowish on stock so may be behind some of it. But let’s face it, when Dalian open interest also soars then we can be pretty sure that China’s loony tune retail speculators (Banana Man) also played some significant role.

Those rebar stocks are also bullish and it’s true that mills follow demand. Q3 may well hold up and mills replenish their inventories though $70 as average looks a big stretch from here. $60 would probably cover it.

But the September-November period is not seasonally bullish at all. It is seasonally weak and traditionally brings in a big destock. If we combine that with what I expect to be a slowing of growth at the margin by then, then mills will indeed follow demand and shed inventories into year end. Especially so given port stocks will be even higher before then if we see some price pressure in Q3.

ASX selling pressure despite iron ore rally

Iron ore roared back, breaking resistance at $60. But this is a bear market. Also port inventories are climbing, while housing price growth is slowing. Expect another test of support at $50 is likely. Breach would signal another decline.

Iron Ore

The ASX 300 Metals & Mining index rallied off support at 2750 but is likely to respect resistance at 3000. Breach of 2750 would signal a primary down-trend.

ASX 300 Metals & Mining

The ASX 300 Banks index also rallied but is likely to respect 8500. Breach of 8000 would confirm the primary down-trend.

ASX 300 Banks

The ASX 200 displays strong selling pressure, with Twiggs Money Flow dipping below zero for the second time. Follow-through below 5700 would test primary support at 5600. Breach of 5600, while not yet a high probability, would complete a broad head and shoulders reversal.

ASX 200

Daily iron ore price update (headfake) | Macrobusiness

By Houses and Holes
at 12:05 am on June 28, 2017
Reproduced with permission of Macrobusiness.

Iron ore price charts for June 27, 2017:


Tianjin benchmark roared 6% to $59.10. Coal is calm. Steel too.

The trigger of course was this, via SCMP:

China would like foreign businesses to keep their profits in the country and reinvest them, Premier Li Keqiang said in his keynote speech at the World Economic Forum in Dalian on Tuesday, although he added there would be no restrictions on the movement of their money.

Economy

China’s economic growth is gaining fresh momentum and there will be no hard landing in the world’s second-biggest economy. The unemployment rate in May dropped to 4.91 per cent, he noted, the lowest level in many years.

Market access

China will continue to open its markets in the services and manufacturing sectors. It will loosen restrictions on shareholdings by foreign companies in joint ventures and will ensure China will continue to be the most attractive investment destination.

Economic policy

The Chinese government will not rely on stimulus to bolster economic growth. Instead, it will use structural adjustment and innovation to maintain economic vitality. The government will keep stable macro policies – a prudent monetary policy and a proactive fiscal policy – to ensure clarity and stability in financial markets.

Financial risks

China is fully capable of containing financial market risks and avoiding systemic ones. There are rising geopolitical risks and increasing voices opposing globalisation. China will keep its promises in combating climate change and will work to promote globalisation.

Absolutely nothing new there. In fact it is a little reassuring to those of us that think reform is on the verge of returning.

But the market has been heavily sold and so it got excited. There is a little room for it to run given lowish mill iron ore inventories:

But, in all honesty, I’m stretching to be positive. The price jump will very quickly arrive at Chinese ports as bowel-shakingly higher inventories in short order:

And the economy is still going to slow at the margin as housing comes off leading to a destock in the foreseeable future:

The great thing about markets is they always off[er] second chances. On this occasion it is to get even more short.