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Index and Commodities trading week beginning 29/05/2023

Index and Commodities trading week beginning 29/05/2023, FP Markets

Market technician’s view of charts that affect equities:

With an agreement now placed on the US debt limit going into this week, the challenge for traders will be ascertaining if this is already priced. This week, the Australian Index set a bullish key reversal pattern last Friday. Further concerns still remain around the US regional banks and the potential for failure as many remain on a high watch alert by the FDIC authorities.

The underlying driver for higher prices remains the developing Artificial Intelligence theme currently running the markets.

Large commodities players BHP, RIO, and FMG remain the go-to trade in the Australian market with many of the smaller players being trimmed lower for the week on poor sentiment.

The Small-cap (under 800m cap) end of the market remains under pressure and vulnerable to further downside as inflationary pressures place a dark cloud over underlying operating costs.

The XJO set a low last week as the heavily weighted large market cap stocks sold down on poor data from China. Traders may see a sharp reversal today; see notes below.

The Australian banks also remain in accumulation mode as a result of increasing interest rates driving net interest margin earnings higher; only the increasing provision for bad debts has
cautioned some investors’ appetite for further accumulation.

XJO WEEKLY
Price structure: Consolidating with the Primary UP trend remaining in place.

The XJO set a low last week as the heavily weighted large market cap stocks sold down on poor data from China. However, the index value has set a “Fake out” low against the low point set 4 weeks ago; this is a bullish setup on confirmation of higher prices over last week’s closing price. Overall, the index remains with a larger developing bullish flag pattern or secondary consolidation currently above the trendline.

Indicator: Relative Strength 14

Relative Strength has remained above the 50 levels (just) as part of the overall change in momentum, with last week turning lower below the 50 level. Further movements over the key 50 level towards the 70 levels will remain very bullish for further gains; a further move below this important level would signal Bearish momentum and sentiment.

Index and Commodities trading week beginning 29/05/2023, FP Markets
Comments last week: Following the Outside range of 3 weeks ago, again followed by an inside range two weeks ago, no only further confirms the underlying support for large cap Australian equities, with last week also posting a failed retest below the 7200 level. While May is traditionally a volatile month, the Index has remained resilient against the early selling pressure seen in overseas markets.

 

XJO DAILY
Price structure: Sentiment remains positive.

Index setting a new low (3?) against point 2 offers the view the lows are complete with 3 points in place. Last Friday’s short range may offer the swing point low only with a higher close today (Monday). With a continuation, the first significant target remains the 7370-level resistance level. Also of significance is the current retest of the 200-day moving average with the longer-term
trendline also offers the trader significant market points for bullish setups flowing the short-range trading day last Friday.

Indicator: Relative Strength 14

The Relative Strength Indicator (14) turned bullish as the pivot reversal takes the indicator above the 50 level, as any reading over the key 50 level indicates price momentum remains positive. Friday’s turn higher is a positive shift in momentum and will improve in the coming days on any further bullish price action; bearish traders should monitor this for a turn lower, indicating a loss of positive momentum.

Index and Commodities trading week beginning 29/05/2023, FP Markets
Comments last week: Also of note on this chart is the 200-day simple moving average turning slightly higher with the Index value remaining above the average. Sentiment remains positive within the top-weighted index components, the top 20 remaining resilient and supported and generally within very strong trading ranges. Trading volumes (not shown) remain consistent with the 12-month average of around 750m to 780m+ per day.

Lithium: Now a long-term play with producers and the balance sheet costs.

Aspiring lithium producers face numerous challenges in meeting this demand and delivering the requisite product grade in volatile commodity prices and uncertain future supply fundamentals. Lithium resources are confined to lithium brine solutions and the less common lithium-bearing pegmatites, which may host other valuable commodities. The discovery, exploration, resource definition and extraction of lithium and other associated commodities from hard rock silicate ores with diverse mineralogy and complex brine solutions requires a laboratory group with focus, dedication and a proven track record.

Lithium carbonate prices highlight the age-old conundrum of demand and supply forces taking place. The Weekly chart of carbonate prices in Australian dollars highlights the effect of increasing
production reaching the marketplace. Underlying Lithium producers will now be valued on balance sheet profits against the cost of production. With 64 ASX company codes listed as mining for lithium, the space remains overcrowded, and individual analysis should be conducted on the balance sheets as the market for Lithium becomes more mature.

Index and Commodities trading week beginning 29/05/2023, FP Markets

S&P 500 WEEKLY
Price structure: Continuing Bullish moves

The S&P500 set a bullish close above the 4200 level, and the potential for a short squeeze leading to a further bullish breakout remains. With the 4200 support / Resistance level close by, a breakout below this level may stage a significant reversal to retest the trendline below the 4050 level. Traders will be cognisant of the driver for the current moves not being a broad advance by all market participants but only a few heavyweights setting the market higher; this has the potential to reverse very quickly.

A breakdown of the lower side trendline would be a very bearish signal not to be ignored by longer-term investors as a strong indication to see continuing weaker prices follow through.

Indicator: Relative Strength Indicator 14

Relative Strength is travelling over the key 50 levels, but to remain bullish, the RSI should continue to turn higher towards the 70 levels with further underlying price advances.

Index and Commodities trading week beginning 29/05/2023, FP Markets

Comments from last week: The favoured directional breakout is higher with the development of the ascending triangle in place and last week setting a valid pivot point reversal signal. Everything about this ascending pattern within the Index suggests a breakout higher. BUT traders should be aware the underlying equities remain under pressure, with only a handful, including Microsoft, Nvidia, Google and Apple, doing the heavy lifting. All are dual listed in the Nasdaq and the S&P500 indices.

 

S&P 500 DAILY
Price structure: Pushing hard against resistance.

The Fake Out (FO) set 2 weeks ago initially played out to retest towards the 4130 level during last week’s as part of the volatility in the US debt ceiling negotiations and the potential for further US regional banks to fail; a lot can go wrong. It should be noted against all of this news; the market has set a new 9-month closing high above the 4200 level.

Indicator: Relative Strength 14

Relative Strength is above the 50 levels, as momentum remains positive. Further price strength for this index will see the RSI move higher above the key 50 level; with the RSI continuing to rise above the key 50 level, further bullish price momentum would remain.

Index and Commodities trading week beginning 29/05/2023, FP Markets
Comments from last week: The most important observation is last week’s final price action has pushed above the 2023 consolidation setting strong trading ranges. The Daily trend and the Weekly trend now align in an upward direction suggesting strong accumulation and further upside could be expected in the short daily observation. The biggest driver to have traders push the index higher remains a short squeeze in the regional banks, along with the US Government liquidity debt position being resolved.

NASDAQ DAILY
Price structure: Expanding ranges

With a 12-month closing high, the Index remains ripe for profit-taking. The underlying sentiment for improving prices remains the developing Artificial Intelligence theme currently driving the markets Higher. This can change quickly; a closing price below the impulsive move set last Friday will be the first warning. The NASDAQ remains in a primary up trend; for longer-term players, this will remain the strongest driver of sentiment.

Indicator: Relative Strength 14

The Relative Strength Indicator is moving back below the 50 and now above the 70 levels; this does not indicate an over brought market; only a strong momentum move is underway with the
current price breakout. This is a strong development, but momentum traders should always monitor for a decline below the 70 level indicating an underlying short-term change in momentum.

Index and Commodities trading week beginning 29/05/2023, FP Markets
Comments from last week: The OPd has been overcome quickly as the market develops. The expanding ranges in the Nasdaq often result in follow-on profit taking; last Friday’s short-range bar indicates the first stage of hesitation by traders and has the potential to mark the short-term high point. Immediate follow-through higher is required this week; any price weakness has the potential to retest the 13,500 level for support within this current strong advance.

USD Spot GOLD – DAILY: Is it a Bull market? Maybe not.

The multi-year chart now represents a significant confirmed bearish triple top in place, with the potential to retest the $1550 level should the full pattern play out over the coming months. An early bullish picture for Gold will only take place with a closing price first over the $1958 level in a relatively short time, being within the next six trading periods. Last Friday saw a quick retest of this
level, with the underlying strength beginning to weaken as the market price failed to move higher against the bullish 3 Bar reversal pattern set 2 weeks ago.

Indicator: Relative Strength 14

The RSI is now declining sharply back below the 50 levels and showing a decline in line with the declining price pattern. Friday’s reversal has raised the RSI but not over the key 50 levels. With the RSI at risk of moving below the key 30 levels, long-term traders should monitor this chart for a major top in play.

Index and Commodities trading week beginning 29/05/2023, FP Markets

Comments from last week: The multi-year chart now represents a significant now confirmed bearish triple top in place, with the potential to retest the $1550 level should the full pattern play out over the coming months.

SILVER DAILY
Price structure: Bull market – Maybe not yet.

The daily chart of Silver set a key reversal bar last Friday with a solid close above the important $23.0 level. Other than a bullish reversal, there is no indication that Silver should trade higher, with the $21.0 support level remaining the downside target only upon a further decline below this support area of $23.00. Traders should monitor this important level for further support in the event
of another decline in the coming days.

Relative Strength 14

Current Relative Strength has turned lower from the 50 level; the current movement is moving towards the 30 levels, setting up a strong bearish signal with the RSI turning lower, only reflecting the underlying upward price momentum lost as the reading moves lower. A continuing move below the 50 levels and lower will remain a very bearish signal in the short term.

Index and Commodities trading week beginning 29/05/2023, FP Markets
Comments from last week: In line with Gold – Silver has set a short-term bullish pivot reversal at an important support level ($23.0). Also, in line with Gold – Silver has set a 3-stage top ($26.20) to remain bullish, silver should trade and close over the $24.60 level in the coming days. Other than a bullish reversal, there is no indication that Silver should trade higher, with the $21.0 support level remaining the downside target only upon a further decline below this support area of $23.00.

AUSTRALIAN VOLATILITY INDEX: The equities traders friend.

The current volatility closing value remains below the important 13 levels. While volatility remains at this level, overall equities sentiment remains solidly bullish.

The underlying Index Volatility reading moved higher last week but continues to remain below the 13-level indicating the 3-month forward pricing of PUT options is slightly increasing.

Generally, lower consolidating commodities prices and consolidation of equity prices are indicated when the reading moves and remains above the 13 levels.

For continued support of equities, the XVI should remain subdued below the “13” level.

The cost of 3-month forward PUT options is decreasing from recent elevated levels.

The XVI is the difference between the 3-month forward pricing of ETO Options against the current month.

As markets anticipate events, the forward-priced option volatility changes; hence as forward price changes, this “skew” in pricing is measured in this XVI.

The XVI value works as an inverse observation of the underlying market.

Index and Commodities trading week beginning 29/05/2023, FP Markets

  • Index and Commodities trading week beginning 29/05/2023, FP Markets
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