The underlying premise of Dow Theory that trading participants price in future events, again shows the markets are pricing in future economic outcomes of hard materials shortages and Soft commodity shortfall from the approaching European planting season.
Copper has entered into a Primary UP trend.
Although the March – April period is seasonally bullish for equities, the past week of price volatility within the metals and Oil markets highlight the opportunities that are on offer in trading in these areas. This looks set to continue in the immediate as the various March futures contracts expire but at the expense of the equities markets as a general risk off sentiment remains in place. A Bear market is now in play.
The XJO 200 continues to consolidate below 7200 and above the key 6960 level. The longer look back shows this level contains price consolidation during Q2 2021 and further back in Q1 2020. A further price breakdown below 6800 level will place the market into a confirmed down trend. As current global events unfold a breakout higher may be short and sharp as the bigger picture of potential rising interest rates and increased commodity costs place a pressure on profitability of listed market entities.
Relative Strength has turned lower, as the reading has moved further away from the 50 level, indicating a loss of positive momentum. While the RSI reflects the ongoing price consolidation the continuing decline is concerning for a further retest lower to 6800. As the Relative Strength Indicator reflects price momentum the current weekly closing price still displays overall slowing momentum.
Comments from last week: An inside week between 6900 and 7200, highly tradable ranges. The Index continues to build a consolidation zone between these two levels. The failure to trade below the previous week’s low is significantly bullish and sets up a further bullish watch for a close above 7200.
The daily chart of the XJO highlights the range of price consolidation underway, the Inside period on Friday has closed in the “mid-range” of the Daily resistance level of 7216 and support of 6960. A breakout higher may be short lived as several resistance levels at 7216 and 7370 remain in play. The previous low of 6758 seems the preferred target in this slowing momentum environment.
The Relative Strength Indicator (14) reflecting the underlying price momentum has moved lower from above the 50-level indicating a shift to slowing momentum. A cross below the key 50 level would indicate a loss of positive momentum.
Trading volumes have been relatively high during the past week leading to Friday’s lower volume on the afternoon decline, volume will be monitored for any further increase as a signal of buyers entering the market.
Comments from last week: The past week has seen hesitant gains, the important observation is last Friday’s retest of the last Monday’s range and late recovery to close high in the range on high volume. This week a close over the Thursday high would set a very bullish tone for further gains with a further close over 7216 setting up a retest of 7370.
The current closing low in the S&P is sitting on a key support level at 4200. The recent bullish a. b. c movement (marked) may be negated with a further decline below the key support of 4200. The S&P 500 meets the requirements of lower highs and lower lows setting a Primary down trend. As with other indices a sharp price rally on positive news may be short lived with resistance levels now building at 4320 and 4545. The next key level of support is 4050.
Price movements are considered positive with a reading above the 50 level, with this continued reading well below the 50 level the Index has continued to accrue more loss points on “average” than gained in the look back period of 14 (weeks). The potential for an accelerated move lower remains as momentum continues to the downside.
Comments from last week: Two weeks ago, the Index was marked with a high close hammer bar that tested (faked out) the lows at “a”, last week the S&P traded “over” but failed to close over the high of the Hammer bar. The bullish retracement in the form of an a, b, c movement is still intact. The “low” will be in place with a close over the hammer bar setting up a retest of 4545. Failure to close over the 4320 level will signal the buyers DO NOT have control with a further test lower if possible.
The OPd (outside period down close) on Friday with a close below daily support shown at 4220, sets a bearish view for this week. The current strong range down close bars last Monday and Friday indicate selling as the current risk off sentiment grows. Further price weakness will target the low of the Gap open reversal bar at 4114.
Relative Strength Indicator (14) has turned slightly higher but remains below the key 50 level. A continued lower close below the 50 level would alert traders to further decreasing price momentum. The overall decline in the Relative strength from November 2021 is notable as the failure to achieve a reading above the 70 level during this period only reflects the underlying market sentiment.
Comments from last week: Last Thursday’s close below the key 4372 level resulted in a Friday “Gap open Buy” signal and a “hammer” bar, both bullish. This week’s price movements may be the defining opportunity for the S&P to recover back to the daily highs of 4600. Traders would monitor this Index for a close over last Thursday’s high at 4416 to remain bullish. (See RSI notes).
The lowest close since May 2021 with last Friday’s “OPd” showing as the Nasdaq extends the Primary down trend already underway. The key to reading sentiment in this chart is the constant failure of Bullish reversal signals. Should a further close into the 1300 level occur the initial “Gap open buy” will be negated as the current downtrend continues to also extend the 5 wave down structure. A Bear market is now in play.
Relative Strength has turned lower and remains below the key 50 level, continuing the negative price momentum on the 14 day look back period. The potential bullish divergence signal remains in play. The overall decline in the Relative strength from the November highs can play out to further declines. The “buy line” remains as an important level prior to the 50 level should market momentum reverse.
Comments from last week: The Daily Nasdaq has also displayed a “Gap open Buy” with the resistance level of 14076 close by. The 5 wave down pattern and the significant Gap open Buy signal of two weeks ago remain intact, and offer a bullish view, should selling become exhausted at these levels. A close below last Friday’s low of 13,738 would send a very strong signal the selling will continue.
The Daily chart of Gold exhibits a blow off high, The immediate “pipe reversal” moving the price 4% lower from the high. The current retest of $1966.80 is underway with the hammer bar showing last Friday. The important early trade this week will be to hold the $1966.80 level as support. Historically the PM sector declines and consolidates (for months) following a strong advance, in the longer term view a retest of the breakout at $1876.90 is possible.
Price momentum has rolled lower, the indicator continuing to move below the 70 level will be the critical observation this week as a signal of continuing weakening price momentum.
Comments from last week: Last week comments suggested a move lower following the OPd rejection of high prices. The current closing price has moved above several key levels to retest the OPd high. Friday’s impulsive movement higher may see profit taking enter the market early this week. A successful retest of the $1916.40 level would be very bullish in the longer term. The key this week for the bullish is to hold the current resistance level of $1966.80 as a new support level.
With the retest of the $27.0 level complete with immediate price rejection back to again test the $25.40 level as support. The $25.40 level will be the key level to hold this week, the potential for a further decline to $23.73 is possible as short-term profits are taken. Silver has entered a Primary UP trend this consolidation area will be an important marker to hold as part of the Primary trend.
Current Relative Strength is moving above the 70 level and now turning sideways shows price momentum is slowing in this retest of the $25.40 area. A continuing move above the 70 level and higher would be very bullish in the short term, however the potential for a further decline remains as price consolidates at $25.40.
Comments from last week: The high close follow through from last Tuesday’s impulsive movement is a very bullish signal for further gains. But here is the price sitting at a 7-month high with more resistance ahead at $27.0. Buyers are in control and subject to profit taking along the way, expect a retest of $25.40 this will gauge the bullishness of the move if this level is held. The Primary trend is now UP. Price failure could be seen on a close below $23.73.
In line with the $USD Gold price and a currently stable $AUD at $0.73cents the $AUD Gold price has set a pipe reversal decline to retest the breakout level of $2712.0. This remains an important level to hold for the Australian Gold sector to remain bullish. Last Friday’s “hammer” bar shows buyers entering on price weakness with an important close above the $2712.0 level.
Relative Strength has turned lower from below the 70 level and remains above the key 50 level. With the loss of positive momentum, Relative Strength may continue to track sideways during this potential consolidation period.
Comments from last week: With strength in the $AUD in the past week the $AUD Gold price is now consolidating below $2712.0 resistance. The Primary trend is UP. For this to continue the underlying $USD Gold price would be required to advance and the $AUD remain at this level ($0.73) or lower.
Strong breakouts often lead to strong reversals to retest the initial breakout level, in this case a retest of the $4.60 to $4.50 level is underway. Price consolidation at this $4.50 level would be a bullish development for Copper to again retest the $4.90 high. Should a closing price move below the $4.50 level the critical level to hold is $4.33 the historical level of support. Copper has entered a Primary UP trend.
Current reading has swung sharply higher above the 50-level reflecting the current momentum move underway. The key for now is the RSI remains above the 50 level as a reflection of ongoing and any positive underlying positive price momentum.
Comments from last week: Dr Copper, the barometer of Global manufacturing strength. Copper has set a new all time high in a stealth move above the previous 14 weeks of resistance and the 2012 high. Here lies the rub, the price of copper has remained within a large trading since 2006 between $1.50 and $4.50. Profit taking should be expected in the very short term to retest the $4.50 breakout. Based on the current range the ultimate multi year target is $11.00.
Forward pricing of PUT options remains on a high skew to current pricing. The market is paying the highest prices since Q4 2020 prices for forward protection. The outcome remains as Bearish pressure on local equities. The XVI is the difference between 3-month forward pricing of ETO Options against 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 to the underlying market.
Comments from last week: Daily volatility remains news driven; the Weekly chart displayed shows the forward price for buying risk cover remains high as the market contemplates the Ukraine situation. Volatility remains elevated placing pressure on equity prices.
The underlying Primary UP trend persists in the DXY daily chart. With the reversal moving to successfully retest the 97.75 level has set a bullish pivot on last Friday’s closing price, the further price target of 100.5 remains in play.
The Relative Strength has turned higher in line with price movements and should now be monitored for further strength as the current reading over the key 50 level should move higher, a further reading above the 70 level would indicate very strong positive price momentum. The short term outcome is to monitor this RSI for a potential bearish divergence signal.
Comments from last week: The DXY has staged a strong breakout above the significant resistance level of 90.45, however with the closing price lower than the high a retracement could be expected to retest this important level. The underlying Primary trend is UP with a further primary move underway. The DXY currently targets the even 100 level.
Recent market panic about Oil supply has pushed the front (March) contract to a high of $130.50, in doing so an opening price “Gap open sell” signal has been set. The current reversal bar has successfully tested and closed above the June 2014 breakout level of $107.73. The important level to hold is the $107.73 in this current week. This contract is in the expiry stages with the longer dated contact trading at a discount to the front contract. This week a break below the $107.73 level would be a bearish signal for a retest of $84.25.
The current price strength has produced a new high in the RSI, this will again be monitored for a developing divergence signal, although it may take many weeks to develop. The Relative Strength crossing and remaining above the 70 level is not a signal of over brought as the reading can remain strong for many weeks.
Comments from last week: During every major conflict from the Falklands war to the current Ukraine crisis Oil has spiked higher on supply risks. However, in all cases when some resolution is on the horizon the price declines rapidly. The WTI showed an impulsive move last week, the largest range in recent times. A price move below the $107.73 high could signal a high is in and profit taking is underway.
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