“The biggest thing driving commodities is the emerging world,” said James Paulsen, 53, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $330 billion of assets. “The emerging world slowdown bottoms out in the first half of the year and by the second half it's accelerating again. You've also got the U.S. economy not just avoiding recession, but growing again.”
Eoin Treacy's view The unweighted Continuous Commodity Index (Old CRB) remains in an 8-month medium-term downtrend. However it is currently rallying to unwind a short-term oversold condition relative to the 200-day MA. A sustained move above 615 will be required to break the progression of lower rally highs and suggest a return to demand dominance beyond the short-term.
Across a number of global indices miners have been among the strongest performers over the last week. BHP Billiton has held a progression of higher reaction lows since October and is now testing the upper side of the six-month range and the 200-day MA. A sustained move above 2100p would indicate a return to medium-term demand dominance. Rio Tinto has a more uniform progression of lower rally highs within its 4-month range. At a minimum it will need to sustain a move above the MA, currently near 3600p to suggest a return to medium-term demand dominance. VALE has been the weakest among the major iron-ore miners. It is also rallying to unwind a short-term oversold condition and will need to sustain a move above $27.50 to break the yearlong progression of lower rally highs.
Elsewhere in the industrial metals mining sector Anglo American has unwound an oversold condition relative to the 200-day MA and is testing the upper side of its four-month range. A sustained move above the psychological 2500p would likely indicate a return to medium-term demand dominance. Xstrata, Glencore International and Kazakhmys are also rallying towards the upper side of their respective four-month ranges and challenging their MAs.
Antofagasta is one of the few large miners to have pushed back above its 200-day MA. It now needs to hold above 1100p to confirm a return to medium-term demand dominance.
Freeport McMoRan was quite overextended when it found support in the region of the 2010 lows from October. It has held a progression of higher reaction lows since and unwound most of the oversold condition relative to the 200-day MA. A sustained move above the trend mean, currently near $43 would break the progression of lower rally highs and suggest a return to medium-term demand dominance. Teck Resources and Southern Copper have a similar pattern.
US Coal miners have in general been among the slowest to recovery from the August sell off and recently retested their respective lows. Peabody Energy is reflective of the sector. The share found support in the region of $30 again last week and appears to be in the process of unwinding its oversold condition relative to the 200-day MA. A sustained move below $30 would be required to question that view. Master Limited Partnership, Alliance Resource Partners is a clear exception. It yields 4.98%, has held above the 200-day M A since late October and a sustained move below $70 would be required to question medium-term scope for additional upside.
There was a great deal of consolidation in the Australian coal sector in 2011 with Coal & Allied, Gloucester Coal and MacArthur Coal all being taken over. New Hope Corp is now the subject of a takeover attempt.
Whitehaven Coal appears to be building support above A$5 but needs to sustain a move above A$6 to indicate a return to medium-term demand dominance. As one of the few Australian coal miners still independent of the world's major miners, I wonder how long it will be before a takeover is attempted.
South Africa's Exxaro and Philippines based Semirara remain leaders in the sector.
The NYSE Arca Gold Bugs Index posted a new 12-month low on Friday but rebounded impressively and a sustained move below 480 would now be required to question current scope for an additional test of overhead trading. (Also see Comment of the Day on December 29th). GoldCorp and Barrick Gold have both bounced from the lower side of their respective ranges. Newmont Mining and Randgold Resources both found at least short-term support in the region of their respective 200-day MAs.
In conclusion, the mining sector is enjoying at least a short-term rally. However, despite a small number of outperformers, most shares need to improve on their recent performance and sustain moves above their respective 200-day Mas to indicate returns to medium-term demand dominance.