MSCI ALL COUNTRIES WORLD INDEX

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For those of you who don’t follow twitter, here are some of the important charts that I shared today. Both MSCI ALL COUNTRIES WORLD INDEX and MSCI EMERGING MARKETS INDEX are at critical levels. Multi-year low volatility in equity indices and commodities (metals) suggest we are approaching strong trend periods.

PALLADIUM

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PALLADIUM

Negative divergence on Palladium chart is a red flag. Divergences are first warning signals of a possible trend reversal. However they should be confirmed by price action – a decisive breakdown. There are few negative signs on this long-term (monthly scale) chart.

1) Price breached its previous high but failed to hold above that level (865).

2) Top in 2011 and the new high in 2014 are not confirmed by the momentum indicator (RSI (14)).

3) Uptrend that started from the low in 2012 has been very weak and choppy.

In the coming months, a breakdown below 700 levels can send Palladium towards 500.

I welcome any thoughts on the possible supply/demand that resulted in such price action or could impact the price in the coming months.

AUD/USD

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In a downtrend the lower boundary of a trend channel represents the “negative” extreme and the upper boundary the “positive” extreme. Price is expected to rebound from the positive and negative extremes. A downtrend is likely to reverse when the upper boundary is broken on the upside. Likewise an uptrend is likely to reverse when the lower boundary is broken on the downside.

CHANGE IN TREND DIRECTION

But what happens when the price doesn’t rebound from the lower or the upper boundary of the trend channel? Breaking down a negative extreme is usually a sign of an accelerated move in the direction of the breakdown.

ACCELERATION IN CURRENT TREND

This is the case with AUD/USD. Since 2011, Australian Dollar vs. U.S. Dollar has been in a downtrend. Cross rate rebounded from the lower boundary twice in 2013. With the latest sell-off AUD/USD breached the lower boundary, failing to rebound. Unless the cross rate recovers above 0.85 levels in the following weeks, latest breakdown will be the beginning of an accelerated move on the downside. In the short/medium-term and Australian dollar is weak against the U.S. dollar.

AUDUSD

MALAYSIA KLSE COMPOSITE INDEX

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Malaysia KLSE Composite index formed a head and shoulder chart pattern. Head and shoulder top is a reversal chart pattern and it is bearish. Today the index slipped below the neckline at 1,770 level. Consecutive daily closes below the support at 1,770 level will confirm the breakdown and possibly push the index towards 1,650 levels in the following weeks. Negative view for the Malaysian equities is confirmed by the weakness in the local currency which breached 3.37 resistance over the past few days. Breakout from a year-long sideways consolidation range can result in further weakness towards 3.55 levels for the Malaysian ringgit.

MALAYSIA KLSE COMP INDEX

USDMYR

Financial sector performance has been weak and below are some of the names that experienced major breakdowns.

CIMB GROUP HOLDING HONG LEONG FINANCIAL GROUP

MAYBANK

USD/RUB (U.S. DOLLAR/RUSSIAN RUBLE)

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USDRUB

Parabolic moves are not sustainable. They are also not easy to trade. It is costly to pick a top or a bottom. Price usually doesn’t stop where we think it would stop. However as a chartist I feel the urge to bring such imbalances to your attention. Whatever the instrument, these type of price movements are the perfect case studies to examine crowd psychology. USD/RUB entered into a parabolic move after breaking above 36.50 – historical high level. Sharp reversals are experienced after such steep price actions. In the past, similar price movements took place on few other charts.

USDKES

In 2011, USD/KES (U.S. DOLLAR/KENYAN SHILLING) had a similar long-term breakout followed by a 8 month-long parabolic move. Steep price action was reversed by Central Bank of Kenya’s bold action to raise interest rates from 6 percent to 18 percent in less than a year.

KENYA INTEREST RATES

In 2008, Rough Rice price rallied from 11.45 to 25 levels. Rice made the headlines (news on Rough Rice). Hoarding and export bans were the result of the sharp price increase. Rough rice fell back to 11.45 levels in the following year.

ROUGH RICE

US DOLLAR/INDONESIAN RUPIAH

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It’s been the year of the U.S. dollar. USD gained strength against most of the developed and emerging market currencies. Central Banks in emerging markets had to adjust interest rates to control currency depreciation. There is one emerging market cross rate that is worth paying attention to. Worst might not be over for the Indonesian rupiah as the USD/IDR cross rate challenges decade-long horizontal resistance. Breakouts from such long-term consolidations usually signal major shift in sentiment and also stress for the economic conditions. USD/IDR is testing critical levels and a breakout above 12,400 levels can result in a sharp depreciation of the currency.

USDIDR

Monthly scale price chart of the US Dollar / Indonesian Rupiah

Weekly scale chart shows the ascending triangle chart pattern – usually regarded as a bullish development in technical analysis. Both the boundaries of the ascending triangle and the decade-long flat consolidation range are overlapping at 12,400 levels – a technical condition that increases the validity of the resistance level.

USDIDR II

Weekly scale price chart of the U.S. Dollar / Indonesian Rupiah

COPPER

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Once again copper is at that critical support. The more price tests an important support level the higher the probability of it breaking down. This is the case on copper price chart. 3 levels have been tested several times over the past 3 years. Commodities have been weak but copper held well above major support. Decisive close below 2.90-2.95 area will confirm breakdown from the descending triangle. Outlook for copper is negative.

COPPER

TURKEY BIST100

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Turkish financial sector has been strong over the past few weeks. I don’t have the deep knowledge or the resources to understand the reasoning behind this. I would welcome any thought. But here, I’d like to share some chart evidence that supports further strength in the banking and financial sector stocks in the coming months. I’d also like to draw your attention to the latest bullish development on the Turkish government bond yields (which could have a positive impact on the financial sector).

TURKEY 2YR YIELDS

In September yields were targeting 11.8 levels. That direction would have been disastrous for the Turkish economy. In October we have seen a “V” reversal changing the whole picture to a more bullish one. 2 YR government bond yields can now target 5-6 area in the coming months.

XUIND XU100 II

Industrials vs. BIST 100 is a chart that I keep track of since 2003. When industrial sector outperforms it usually signals underperformance for the financial sector and this coincides with market corrections. XU IND/ XU 100 ratio is now reversing from a multi-year resistance suggesting financial sector outperformance and industrial underperformance.

Long-term chart patters are usually very powerful. When I see major chart patterns developing on long-term scale I pay close attention. Below are some of the financial sector stocks that has formed bullish chart patterns. Latest chart patterns or consolidations can be compared with 2010-2012 periods. I think they are similar.

HALKB

HALKBANK is forming a year-long inverse head and shoulder. Neckline stands at 16.80 levels

KCHOL

KOC HOLDING breaks out to all-time high levels. This is a bullish development.

SAHOL

SABANCI HOLDING formed a year-long inverse head and shoulder. Breakout above 10.60 will be very bullish.

VAKBN

VAKIFLAR BANK formed a year-long inverse head and shoulder with bullish implications. Breakout above 5.30 will be very positive for the stock.

YKBNK

Another inverse head and shoulder chart pattern can be seen on YAPI KREDI BANK.

RUSSIA MICEX INDEX

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RUSSIA MICEX INDEX

One would think after sanctions and geopolitical tension Russian equities would experience sharp corrections or at least minor pullback. Chart suggests the opposite. Russian equities are gaining strength and MICEX index is now challenging year-long resistance at 1,530 levels. MICEX Index is cap-weighted composite index calculated based on prices of the 50 most liquid Russian stocks of the largest and dynamically developing Russian issuers presented on the Moscow Exchange. MICEX Index was launched on September 22, 1997 at base value 100. The MICEX Index is calculated in real-time and denominated by Moscow Exchange in Russian rubles. Breakout above 1,530 levels will clear the trend channel and horizontal resistance. Such price action will be positive in the medium/long-term.

NOVATEK

And NOVATEK – an energy company with $27 billion market cap is trying to breakout from a 3 year-long sideways consolidation to all-time high levels… Both charts are extremely constructive.

DAX, RUSSELL 2000, NIKKEI, STOXX 50

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Global equity markets are experiencing significant weakness. I shared several updates over the past few weeks and updated the latest charts on twitter. It is important to share these updates with Tech Charts followers on different platforms. I’m adding latest tweets below.