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Commodities, Resource Dollars Hammered By Poor China Data
00:00, 15 April 2013
Major market selloffs usually unfold in three stages: 1) The initial breakdown, stampede to the doors by active players and clearing out of close stop loss orders 2) A second wave of delayed selling pressure from less active players after hearing about the initial breakdown through the evening or next morning 3) The final washout/capitulation of weak longs and mopping up of forced selling from margin calls In the wake of Friday’s rout, particularly in precious metals and energy, a second wave of selling following the weekend led by the Asia Pacific region’s first crack at reacting to recent developments was reasonable to expect. This second round of selling has been amplified today by more disappointing economic results out of China and potential curtailing of resource demand. Considering that the street had been counting on a resurgence in the US and China to offset a weakening Europe, and that China had been such a key driver of the commodity bull market of the last decade, today’s news has hit markets sensitive to resource demand particularly hard. For a second straight day, precious metals have been hit really hard with gold diving 4.3% and falling below $1,400 for the first time in two years and silver plunging over 7.0% to its lowest levels since late 2010. China sensitive Copper plus US and UK crude oil also remain under pressure today. A number of people have been asking me why after years of going against the grain on tough days, why precious metals have lost their haven role and are leading the decline even with QE ramping up. This action indicates that with no signs of imminent financial meltdown in Europe, gold and silver have returned to their primary role as an inflation hedge. With commodity prices falling out of bed, inflation pressures have been cut dramatically reducing demand for gold and silver. The reaction to the possibility that Cyprus may be forced to sell gold to raise cash appears very reminiscent of the action in the 1990s bear market when countries like Argentina sold gold to raise money. After holding up surprisingly weak, resource dollars (CAD, AUD and NZD) have had the wind knocked out of them today, staggering to big losses. Capital has gone back into USD and JPY as the main defensive plays. Comments from the US over the weekend warning Japan about currency devaluation suggest that 100.00 could be heavily defended for some time. GBP and EUR continue to hold in very well as their resurgence continues. Stock markets are also under pressure again today. Asia Pacific markets were hit the hardest with the overextended Nikkei leading the way lower along with the China-sensitive Hang Seng. The resource sensitive Aussie 200 also fell but at a lesser pace. Surprisingly, European stocks are down moderately with the FTSE (which has a higher weighing in resource sectors than its continental counterparts) leading the retreat. The combined impact of overnight action suggests that resource weighted Canadian indices could come under heavy pressure again today and may overshoot their US peers to the downside once again as this major market selloff plays itself out. Economic News Significant economic announcements released overnight include: US Empire manufacturing index 3.05 vs street 7.00 Canada existing home sales 2.4% vs previous (2.1%) China Q1 GDP 7.7% vs street 8.0% vs previous 7.9% China industrial production 8.9% vs street 10.1% China retail sales 12.6% in line China electricity generation 2.1% over year Japan industrial production (10.5%) vs previous (11.0%) Singapore retail sales (2.7%) vs street (3.4%) NZ Performance services index 55.4 vs previous 55.5 Australia home loans 2.0% vs street 1.5% Economic reports due later this morning include: 10:00 am ET US NAHB housing market index street 45 Corporate News Earnings reports have started to pick up today. Highlights include: Citigroup $1.29 vs street $1.23 North American indices US30’s RSI has rolled back under 70 from overbought territory, a bearish technical sign. It has fallen back from 14,900 toward 14,800 but remains vulnerable to a retest of its 14.675 recent breakout point. SPX500 continues to slump back from 1,600 currently trading near 1,580 with next support levels near 1,570 then 1,550. NDAQ100 is consolidating recent gains between 2,835 and 2,865. Upward momentum stalling but it remains in an uptrend above its 2,820 breakout point. US SmallCap 2000 is dropping back within a 910-955 trading channel. RSI near 50 suggests momentum turning downward. A double top may now be in place. Canada60 faltered short of 710 Friday and could test 700 again today with next support near 692 then 686 on trend. UK and European Indices UK 100 is breaking down today, taking out 6,375 as it falls from a lower high. It has successfully tested 6,300 with next potential support after that near 6,210. Germany30 remains under pressure with resistance falling toward 7,800 on the index and 50 on the RSI. Next key support levels appear near 7,600 then 7,500 in the current downtrend. France 40 remains under distribution breaking trend support again today as it drops in a falling channel. Resistance falls toward 3,740 with next support near 3,660 then 3,600 and 3,540. Italy 40 is drifting lower but so far remains above the extension of a broken old trend resistance line. Currently trading between 15,600 and 15,850. Spain 35 remains in a downtrend, breaking 8,000 again today with resistance falling toward 8,100. Next key downside support near 7,900 then 7,700. RSI remains under 50 indicating downward mo remains intact. Commodities Gold is falling like a knife again today. It plunged under $1,400 and has bounced back a bit, but remains below 1,445, a 38% Fibonacci level. RSI oversold but it could complete a 50% retracement to test $1,300 before this is all over. Silver has completed a 62% retracement of its 2008-2011 rally and is trying to stabilize near the $24.00 level having bounced up off $22.60 after getting deeply oversold. Copper remains under pressure with RSI faltering short of 50 and the price breaking down through $3.28. Initial support emerges near $3.20 followed by the key $3.00 level. US crude is trying to find some support to start the week near $89.00 but with H&S tops in both the price and RSI, a retest of $85.00 remains possible. Initial resistance on a bounce appears near $90.00 then $91.00. UK crude has fallen into a potential support zone between 50% ($104.00) and 62% ($100.24) retracements of the previous uptrend with RSI near oversold territory. Gasoline is trying to stabilize near $3.80 as it appears to be trying to hammer out a bottom above support in the $2.70-$2.75 area. Initial resistance appears near $2.86 then the $2.90-$2.95 area. Natural Gas remains above $4.20 near its 52-week high despite a negative RSI divergence which suggests it may be overdue for a correction back toward $4.00 or even $3.85. FX USDCAD popped up over $1.0200 but has started to drop back from a lower high. RSI back above 50, however, suggests upward momentum building. $1.0180 remains key, if it holds as new support, $1.0240 or $1.0300 could be tested with $1.0100 next support if it fails. EURUSD has seen its progress stall as it consolidates in the $1.3000 to $1.3140 area. GBPUSD has slipped back from $1.5400 resistance but remains in an uptrend above $1.5280 supported by a rising RSI. USDNOK is steady near 5.75 with support emerging at a higher low near 5.70 and resistance in place near 5.80 then 5.90. USDSEK is holding near the centre of a 6.30 to 6.60 trading channel as a base continues to form in that area. . USDZAR has rallied back up above 9.00 and remains in an uptrend but current faces significant resistance in the 9.25-9.25 area with support near 8.90.