PALLADIUM and COPPER

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Both Palladium and Copper have industrial use. Yet one has clearly outperformed the other over the past four years. Charts suggest the latest strength in Palladium and weakness in Copper could continue. 10 year weekly correlation between Palladium and Copper has been positive 0.4869.

CORRELATION

Last week Palladium broke out of its year-long sideways consolidation pattern. While Copper has been in a downtrend and clearly below its long-term average. Weakness in Copper price is continuing this week with the industrial metal now challenging the strong support at 3 levels. Breakdown below 3 levels will have long-term negative implications.

PALLADIUM III

COPPER

Relative performance ratio between Palladium and Copper favor Palladium in the medium-term. An interesting fact is that Palladium has been outperforming Copper since the beginning of 2009. This trend should continue.

PALLADIUM VS COPPER

U.S. DOLLAR INDEX

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Multi-year low volatility reading on the U.S. dollar index suggests strong directional movement in the following weeks/months. U.S. dollar index tested the strong support level for the 5th time over the past two years and a breakdown below this support level at 79.5 could push the U.S. dollar index towards 75 levels. Unless we see another rebound from the strong support in the following weeks, we will favor a bearish scenario for the U.S. dollar. Low volatility is something we should keep an eye on. Previous breakouts from such low volatility readings resulted in sharp price swings.

US DOLLAR INDEX

 

BRENT CRUDE and PALLADIUM

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Strong breakouts are likely on these two commodities in the following weeks. Both Brent Crude oil and Palladium reached multi-year low volatility levels. Volatility is cyclical. Low volatility periods are usually followed by high volatility and vice versa. Charts below show Brent Crude Oil ETF trading in London and Palladium cash price. Breakout above 73 levels on ETFS Brent and also above 767 levels on Palladium will be followed by strong trend periods. We should monitor these two commodities closely in the following weeks.

ETFS BRENT

PALLADIUM

MSCI TURKEY, YIELDS and USD/TRY

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Over the past few weeks we have seen stability in the Turkish equity and currency markets. Turkey started outperforming the MSCI Emerging markets index after its massive underperformance. MSCI Turkey/MSCI Emerging Markets ratio rebounded from multi-year support. This is positive news for the Turkish equities and this trend should resume.  Meanwhile recovery in the emerging markets helped the MSCI Emerging Markets index rebound from the lower boundary of its 3 year-long sideways consolidation. This also suggests some positive sentiment for the emerging markets going forward.

MSCI EM

MSCI TURKEY vs MSCI EM

USD/TRY which took a parabolic shape and reached 2.40 levels, reversed sharply lower and started pulling back to its 200-day moving average. Expect stronger Turkish lira in the short/medium-term.

USDTRY

Turkish government bond yields are now close to strong resistance area between 10.5 and 11.8. Failure to break the strong resistance area could result in lower yields in the following months.

TR 2YR GOVT YIELDS

EMERGING MARKETS – EQUITIES

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Are emerging markets really weak? There are outflows from the emerging markets but how are their equity market performances so far? Are their long-term uptrends challenged? Has there been significant technical damage during the latest so-called weakness?

If a market is holding above its long-term moving average (200-day moving average), I classify this a uptrend. Likewise, if a market is recording higher highs and higher lows, this is also considered an uptrend. Below I analyzed 21 emerging market equity indices. Most of the markets are still healthy and they are either in a uptrend or moving sideways (no major downtrend as of now). For some emerging market weakness is not a new phenomena. They have been weak over the past 3 years. Yes, some markets have experienced weakness, but to conclude for further weakness we should see major breakdowns. At this stage I don’t see major breakdowns on the charts. On the contrary, I’m analyzing more sideways consolidations and possibility of rebounds from strong support areas.

Markets that are weakening: CHILE, THAILAND

Markets that have been weak but now close to strong support: BRAZIL, COLOMBIA, PERU, CHINA, MOROCCO, TURKEY

Markets that are moving sideways: MEXICO, INDONESIA, KOREA, PHILIPPINES, TAIWAN, HUNGARY, POLAND, CZECH REPUBLIC, RUSSIA

Markets that are in an uptrend:  INDIA, MALAYSIA, EGYPT, SOUTH AFRICA.

MSCI EM III

CHILEAN IGPA INDEX

BRAZIL BOVESPA INDEX

COLOMBIA COLCAP INDEX

MEXICO MXSE IPC INDEX

PERU LIMA SE IGRA INDEX

CHINA SSE 50 INDEX

INDIA BSE SENSEX

INDONESIA JSX 45 INDEX

KOREA KOSPI INDEX

MALAYSIA KLSE INDEX

PHILIPPINES SE INDEX

TAIWAN SE WEIGHTED INDEX

THAILAND SET INDEX

HUNGARY BUDAPEST SE INDEX II

POLAND WIG 20 INDEX

PRAGUE SE INDEX

RUSSIA MICEX INDEX

EGYPT EGX 30 INDEX

MOROCCO ALL SHARE INDEX

SOUTH AFRICA ALL SHARE INDEX

TURKEY ISE 100 INDEX

U.S. UNEMPLOYMENT

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U.S. ADP January payroll change smallest since August at 175,000. U.S. employment increased by 175K private sector jobs in January. Data updated on a monthly basis.

Thursday: U.S. weekly jobless claims data. Data updated on a weekly basis.

These two data series become more important as FED starts tapering program. U.S. weekly jobless claims and ADP Employment (total nonfarm private employment) reached strong support levels; in other words overstretched levels from historical perspective. Any data point going forward could be worse than expected. Historically medium/long-term reversals took place around these levels. By looking at these long-term charts on the economic time series, I believe the FED will not be aggressive in their tapering program in the following months. Any spike on the U.S. weekly jobless claims or worse than expected numbers on the ADP employment could weaken the case for further tapering.

ADP EMPLOYMENT

US JOBLESS CLAIMS

U.S. DOLLAR INDEX

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February will be an important month for currencies and especially for the U.S. dollar. U.S. dollar index rebounded from the lower boundary of its 2 year-long consolidation for the 4th time and now the index is challenging the minor resistance at 81.50 levels. Similar breakouts resulted in a strong U.S. dollar in the first half of 2012 and in the beginning of 2013. Breakout above 81.50 can push the U.S. dollar index towards 84-85 area in the following months. Strong medium-term support remains at 79.5.

U.S. Dollar Index (Weekly scale)

US DOLLAR INDEX weekly

U.S. Dollar Index (Daily scale)

US DOLLAR INDEX daily

BIST 100 (TURKEY) and INDUSTRIAL SECTOR

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From politics to its financial markets and its currency, news flow on Turkey has been negative. Can the financial markets in Turkey return to stability?  I’d like to draw attention to an interesting correlation between BIST 100  and the relative performance ratio between Industrial sector and BIST 100 index. Relative performance ratio is calculated by dividing the Industrial index (XUSIN) to BIST 100.

BIST 100 INDEX III

XUSIN XU100

Few findings:

1) Correction periods on the BIST 100 index resulted in outperformance for the Industrials and undeperformance for the Financials.

2) Since 2004, 0.93-0.95 area acted as strong resistance for the relative performance ratio between XUIND/XU100.

Few conclusions:

1) As the relative performance ratio reached strong resistance area, we are likely to see a change in trend favoring financials.

2) Change in sector performance (Underperform: Industrials, Outperform: Financials) could have a positive effect on the BIST 100 index.

We are at the early stages of this development and we should wait for the initial reaction (confirmation) on both the relative performance ratio and the BIST100 index.

USD/TRY – case study of parabolic moves

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Parabolic moves are common in the financial markets. They are widely participated (though not anticipated). During these type of moves volatility increases tremendously. Similar to a ball thrown in the air, once they run out of energy they fall back with the same speed. Below are four different chart examples with similar price actions. Frome a technical perspective all of them reached their upper boundary and reversed.

Steep price actions are not sustainable and they should be followed by sharp pull-backs. Both on the upside and the downside volatility remains high and daily price swings are sharp during these type of price actions.

USD/TRY (U.S. dollar/Turkish Lira) is experiencing a similar price action over the past few weeks.  We should accept high volatility and be prepared for pull-backs.

USDTRY II

GOLD

ROUGH RICE

USDKES

Update: TURKEY YIELDS and BIST 100

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Below are two updated charts on an earlier theme I discussed on this blog. Relative performance ratio between 2 year government bond yields and 10 year government bond yields is breaking above a critical threshold and repeating the same cycle of late 2011. Short-term yields are outperforming the long-term yields and the selling pressure remains intact on the equity index. As long as the 2YR / 10YR ratio trends higher, equity market will remain under pressure and yields will suggest further upside.

2YR vs 10YR II

BIST 100 INDEX II