Today's interesting charts
Comment of the Day

February 14 2013

Commentary by David Fuller

Today's interesting charts

David Fuller's view Price action, seen on charts, is the investor's best defence against wayward market opinions.

In descending order of importance, weather conditions, 'investment' in commodities via tracker funds, soft currencies and also the US Ethanol policy have created havoc with prices for staple grains in recent years. Will it happen again in 2013?

That is mostly up to the weather gods but a more benign environment for crops is statistically overdue. Also, there is currently less long-side speculation in these markets than we have seen for several years. That is unlikely to return to the same extent, at least not without significant supply concerns, because the strategies proved to be considerably more profitable for the suppliers of commodity trackers than investors. Moreover, the 2007-8 staple foods bubbles had a more devastating impact than is generally realised.

Meanwhile, another upward spiral in staple grain and bean prices, when it next occurs, would jeopardise economic recovery, particularly in the poorer developing economies.

Soybeans (weekly & daily) fell back sharply from previous resistance near $15 before losing some momentum as the November and January lows were approached. Another upward dynamic between current levels and $13.50 is required to reaffirm support in this region against the background of oversold short-term indicators. Should that happen, a sustained break above $15 would be necessary to revive clearly bullish expectations. While soybeans are currently on the defensive, the 10-year chart shows steadily rising lows for reasons mentioned in the introduction.

Corn (weekly & daily) experienced a significant upside failure following the push above $8 last August. It has drifted lower over the last 10 days and is short-term oversold. However, an upward dynamic is required near the early-January low to reaffirm support in this region.

Wheat's technical action (weekly & daily) has been more restrained, relative to soybeans and corn above, following its spike peak in February 2008. Nevertheless, its last two rallies in 2010 and 2012 occurred rapidly, although approximately two-thirds of those gains were retraced. Wheat also formed the bigger top area during the second half of last year and it has fallen beneath its January low this week. Prior support below $6.90 is likely to steady the price, in line with a short-term oversold condition, but here also an upward dynamic is required to halt the current slide beyond a brief pause.

Rough rice's overall pattern (weekly & daily) more closely resembles wheat than corn or soybeans, in terms of being more muted following the burst bubble, although the lows have been mostly rising since mid-2010. Rice surged earlier this month to clear last year's range highs but the breakout was not sustained. Nevertheless, a further decline below $15 is required to offset the potentially inflationary implications of this pattern for at least the medium term.

As for global stock markets, Europe (weekly & daily) has seen most of the selling pressure from overbought conditions this month, partly due to the euro's rally, which peaked just above EUR/USD €1.37 (weekly & daily) at the beginning of February and marks a high of at least near-term significance.

However, the serial laggard before last June - Greece (weekly & daily) - remains in form while the rising lows, best seen on the daily chart, remain intact. Also, watch the rising lows for Ireland (weekly & daily) because when the sequence on the daily chart gives way some mean reversion will most likely follow. Nevertheless, Ireland's weekly chart suggests that this will remain a medium-term recovery candidate.

Among emerging markets, Mexico and India are currently experiencing some mean reversion towards their 200-day MAs, and many other overextended indices are likely to follow this lead in the weeks ahead.

Meanwhile, some of the indices still in form, such as the S&P 500 (weekly & daily), have seen their advances slow, and they will eventually spill over into mean reversion towards the rising MAs.

Nevertheless, there is a reasonable chance that we will see lesser reactions or corrections than have occurred in the last three years, because global confidence has improved, monetary policies remain extremely accommodative, and a small amount of capital is moving away from bonds and into stocks. However, 'events' that are generally unexpected today may also remain an influential factor.

Lastly, technical and fundamental catch-up plays, Japan (weekly & daily), China (weekly & daily) and Vietnam (weekly & daily), which I have often mentioned in recent months, are likely to remain relative outperformers over the medium term. And when both Japan and especially China are performing, temporarily overstretched Australia (weekly & daily) should also remain in form. Note: China and Vietnam have been closed this week during their New Year holidays.

Back to top