SOYBEANS

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Soybeans are close to a strong directional move. Since the dry summer conditions ended prices have reversed sharply and pulled back to their 200 day moving average. Soybeans found resistance between 1,664-1,800 area in August and formed a double top chart pattern which was broken down at 1,600 level in September. Prices are now consolidating above the long-term support at 1,517 levels. Failure to hold above this level could result in a larger scale correction towards 1,300 levels.

Daily chart focuses on the last one year’s uptrend and shows the last two month’s consolidation between 1,574 and 1,517. Low volatility suggests a breakout is imminent and should be followed by a strong directional movement. Breakout above the short-term resistance at 1,574 will push prices towards 1,650 levels. We should watch Soybeans closely in the following weeks.

U.S. 5 YEAR NOTE

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U.S. government bonds are likely to rebound at the back of a risk-off environment. Weak commodities and equities helped cash and cash equivalents to gain strength over the past week. U.S. 5 year note provides good risk/reward in the short-term as it found support at a strong technical level and also rebounded with an outside day.  Outside days are days where the chart bar is both higher and lower than  that of the previous day. When the bar is both higher and lower than the previous day’s bar, it falls  outside the trading range of the previous day. This may indicate a change in the  general direction of the trend (in this case upwards). U.S. 5 year note rebounded from the horizontal support and the 200-day moving average. 123.65 level is the support. Upper boundary of the consolidation range is at 125 and price can target this level in the following days. Breakdown below 123.65 will reverse the positive technical outlook.

S&P GSCI (COMMODITY INDEX)

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Commodities are selling off. From energy to metals we have seen widespread weakness in commodities at the back of global growth concerns. Since March 2011, S&P GSCI has been in a downtrend forming wide swings. Feb 2012 peak was lower than the April 2011 and Sept 2012 peak was lower than Feb 2012. This resulted in a downward sloping trend channel and in this trend channel we have seen wide swings between 700 levels and 500 levels. During this medium-term range bound trading (with a downward bias), 200-day moving average acted as a balance where index levels above the average resulted in continued strength and index and below that threshold it resulted in weakness.

After finding resistance at 700 levels in September 2012, S&P GSCI sold-off sharply to test its long-term average at 652 levels. Two months-long consolidation that formed above the 200-day moving average broke down with a gap opening during this week. Index is now below the 200-day moving average. Failure to hold above long-term support levels will put further pressure on the downside and will pull the index towards 600 levels.

Unless S&P GSCI reverses back above 652 levels in the following weeks, we should expect lower prices and continued weakness in the commodity universe.

U.S. INITIAL JOBLESS CLAIMS

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Fool me once, shame on you. Fool me twice, shame on me… Jobless claims increased by 46,000 to 388,000 in the week ended Oct. 13 from a revised 342,000 the prior period that was the lowest since February 2008. This was recorded as a sharp reversal on our charts and with 388K, initial jobless claims is now above the 52-week average, an important threshold for the 3 year-long downtrend. In the following weeks 52 week moving average will become support at 376K.

UNEMPLOYMENT

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I’m sure everybody read the critics on how the data on job numbers were misleading or totally wrong. While the expectation was 8.2% for the month of September, unemployment rate was reported as 7.8%. A sharp drop! Leaving all the conspiracy theories aside, this data was exactly what we needed to resume the downtrend in jobless claims and improve the unemployment numbers. You’ll remember I wrote about the loss of momentum on the jobless claims and how long it took for the unemployment number to decline from 10% to 8% when compared with previous recoveries. With latest data charts are looking better now! I’ve updated the charts below and the conclusion is:  1) Downtrend on the jobless claims continues below the 52 week moving average. 2) Since the 1 year & 2 year moving average bearish crossover, unemployment rate continues to decline. Jobless claims managed to resume its 3 year-long downtrend by staying below its long-term average. 52 week moving average stands at 372K.

EUR/USD

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Did euro reverse its 2 year-long downtrend? EUR/USD broke down its long-term moving average in September 2011. Since then it has been trending below the 200 day moving average with one exception in October 2011, which was a 3 day spike above the long-term average and was not a valid breakout. In July 2012, EUR/USD reached 1.20 levels. Rebound from the oversold levels carried EUR/USD to the trend resistance at 1.2650. It didn’t take long for the cross rate to clear this resistance in September 2012. Breakout was followed by a sharp rally towards 1.3150 levels. During this rally EUR/USD breached the 200-day moving average for the first time in one year. In the last two months we have seen a pullback to the long-term average which is now forming support at 1.2860. If EUR/USD can stabilize above the long-term average at 1.2860 levels, we are likely to see the continuation of the strength in the euro. It is important for the cross rate to hold above this support. Failure to hold above 1.2860, could send EUR/USD back to 1.25 levels.

VOLATILITY INDEX

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Followers of Tech Charts will remember this chart on the CBOE VIX. I have been bringing this important chart to your attention for almost 3 months. Repetitive positive divergences and similar technical outlook in the past two CBOE VIX reversals made this chart even more essential. VIX found support at 15 levels in 2008, 2010, 2011 and 2012. Each one of those tests were followed by a sharp spike in volatility. In the past two reversals MACD generated positive divergences that were early warning signals of correction in equity markets. When we compare the low in the first quarter of 2012 and the low in the second half of the year, we can’t miss the non-confirmation on the momentum indicator and the volatility index. So the question is: Are we at the beginning of an increased volatility period?

USD/TL

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Long-term charts are usually self-explanatory. They lay out the big picture in a clear-cut way. The below long-term chart (decade-long) shows U.S. dollar vs. Turkish Lira. From 2002 to 2011 USD/TL moved between 1.15 and 1.76. This was a wide trading range with several of volatile swings. In the last quarter of 2011 there has been a major change in supply & demand. USD/TL breached 1.76 levels… This was followed by a consolidation above the long-term resistance. Long-term resistance at 1.76 became support.

Not only USD/TL found support at 1.76 levels but also above the 200-day moving average. Over the past year, the consolidation took the shape of a symmetrical triangle. Symmetrical triangle is usually regarded as a continuation chart pattern. The chart below takes a closer look at the symmetrical triangle consolidation between 1.8420 and 1.78. It is now clear that USD/TL will breakout from the year-long contracting range. A breakout on the upside (breaching above 1.8420) will be bullish for the dollar. Unless we see USD/TL below 1.76, we should continue to expect strong USD and weak TL.

SUGAR

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Sugar prices are now testing a 5 year-long trend support. Since the beginning of 2007 prices have been moving higher. Swings in the uptrend have been sharp and volatile. It is now the 5th time sugar is testing the long-term trend support at 18.90 levels. Relative Strength Index formed a positive divergence on the weekly scale suggesting weakening downward momentum and warning of a possible reversal. From a long-term perspective sugar is offering a good risk/reward trade opportunity. It is important for the price to hold above 18.90 levels in the following weeks. In case of a rebound from the strong support levels price can test the 200-day moving average at 22 levels. Watch sugar prices with a possibility of a strong rebound.

U.S. INITIAL JOBLESS CLAIMS

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Claims for the September 15 week are down only 3,000 to a 382,000 level that is above consensus for 373,000. The September 8 week is revised to 385,000 with roughly half of the week’s 18,000 jump due to Isaac. In my opinion people are too focused on week to week changes while on the other hand slowing down in the last 3 year’s downtrend deserves more attention. I’m following the momentum and the 1 year average of the jobless claims unlike the widely reported 4 week average of the data. I believe 4 week average is too volatile. You’ll remember from my earlier updates that I kept on drawing attention to the 380K level which was the 52 week moving average. Last week I also added the timeline for the past and recent QE announcements on the chart. My concern is the slowing down momentum of the last 3 year’s downtrend. And if we don’t see jobless claims falling below 380K in the following weeks, this could be a medium term reversal on the jobless claims. This would eventually push unemployment rate higher. Okay, I understand the argument that QE 3 will take time to have an impact on the unemployment but what about the impact of QE 2. Aren’t we at the same levels of jobless claims since QE 2?