Both Italy and Spain are holding above their 200 day moving averages. After bottoming in mid-2012, both indices have formed higher highs and higher lows. Lower boundary of short/medium-term trend channels and the 200 day averages are overlapping at recent low levels and strengthening support levels for both indices. As long as Italy’s MIBTEL holds above 15,600 and Spain’s IBEX 35 above 7,900, we will expect the uptrends to resume.
GOLD is likely to find support between $1,525 and $1,550. Year-long consolidation range has been intact between $1,525 and $1,800 levels. Latest sell-off in gold prices is not different that the earlier weaknesses precious metal experienced when the price reached the lower boundary of the medium-term consolidation range. Long-term trend analysis and the moving averages suggest $1,525 should act as strong support. Sideways consolidation between $1,525 and $1,800 is part of the long-term uptrend.
Here we have another soft commodity that is closer to its long-term support area. Similar to sugar, cocoa also peaked in the beginning of 2011 and since then prices have pulled back to test the lower boundary of the long-term trend channel at 2,050 levels. Finding support between 2,050 and 2,100 could help cocoa establish a new long-term uptrend. Current price action is similar to 2005-2006 base formation.
Sugar price is offering a great opportunity for the long-term positions. Price is now testing the 9 year-long trend support between 17 and 18 levels. Over the past 2 years sugar price pulled back from 35 levels to the lower boundary of its long-term uptrend. RSI formed positive divergence on the weekly scale. Breakout above 20 levels will reverse the 2 year-long downtrend. 17-18 area should act as strong long-term support.
Long base formation on Cotton price might be close to completion with soft agricultural commodity breaching the 5 month-long horizontal resistance at 77.60 levels. The chart analyzes ICE Cotton May 13 futures price. Chart pattern can be defined as an ascending triangle or cup with handle formation with a round base that is spread over a 6 month period. Recent strength comes after low a volatility period thus increasing the likelihood of an upward trend. If cotton price remains above 77.60 over the next few days, we should expect acceleration on the upside towards 83 levels.
In April 2012 I analyzed the downtrend on the Chinese GDP and the SSE 50 Index (April 13, 2012 – SSE50 Index & China GDP). Chinese equities were trending lower since the mid-2009 and the GDP growth since the beginning of 2010. Equity markets acted as a perfect leading indicator. I’ve concluded that until we see a change in trend on the equity market performance, which was a clear downward trend at that time, we should expect lower GDP growth for the Chinese economy. At the time of the analysis quarterly GDP figure stood at 8.1 % and the SSE 50 Index was around 1,700 levels. In the 2nd and 3rd quarter of 2012, equity indices resumed their downtrend and the GDP dipped to 7.4%.
4th quarter GDP for the Chinese economy is expected on the 17th of January. Overall growth is anticipated to rise by 7.8% annually in the fourth quarter. This will be an improvement from the third quarter, when the economy expanded by 7.4%, and would be the first uptick in growth since the beginning of 2010. By looking at stock market performance over the past few months we can say that equities are signaling a turnaround in the economy and the growth rates and possibly putting a medium term bottom at these levels. Breakout above the 2 year-long downtrend on the SSE 50 Index is bullish for the chinese equities and should be backed by strong economic data.
After more than 3 year-long downtrend, Chinese equity index SSE 50 is now showing signs of strength. In the last part of 2012, Chinese equities rallied sharply from three-year low levels. Sharp reversal on the SSE 50 Index first breached the long-term moving average at 1,670 levels and then broke above the downward trend line at 1,750 levels. We are likely to see a change in trend in the medium/long-term and this could result in a outperformance for the Chinese equities over the coming months. Latest breakouts are significant and will have bullish implications for Shanghai indices.
Japanese equities are rising and the Japanese Yen is weakening. These two are not very common comments when we take the Nikkei 225 and USD/JPY medium/long-term price trends into consideration. Nikkei 225 Index has been trending lower in a wide trend channel over the past 3 years. Wide swings have bounced off the boundaries of the downward trend channel several times. With the latest rally from 9,000 levels Japan’s Nikkei 225 Index breached above the 3 year-long trend resistance at 9,850 levels. This is a powerful move and could be the beginning of a larger-scale upward trend. Index will challenge the horizontal resistance at 10,250 levels in the following days. For the latest breakout to be valid and result in further strength towards 11,000-12,000 area, Nikkei 225 Index should not fall below 9,800 levels. In other words index should maintain its move outside of the trend channel.
While equities have performed well, commodities have shown relative weakness. From the commodities, agricultural have significantly lagged the rest. The chart below analyzes Corn price over the past 3 months. Sideways consolidation is taking place above the 200-day moving average, which acted as a support for the past 3 months. Boundaries of the possible symmetrical triangle formation are 710 and 760. Failure to hold above 710 levels will push corn price towards 670 levels. It is now the 3rd time that the price is testing the 200-day moving average and a rebound from these levels could target 750 once again. Watch for a direction move in the following weeks.
