Safe Haven Commodities To Benefit

Turning our thoughts to the market – we saw a whole new week of selling in the equity market and the sentiment has certainly shifted. Despite many attempts of central bankers doing their usual talking round, the selling from US open has led us to believe that a top in the October rally is in and we are undergoing a possible mini rate hike tantrum. Coincide this with the attack in Paris; we can only envisage carnage next week. Watching the VIX index has given us many clues that this time it is act of terrorism that led to possible correction.

If you followed our weekly analysis, we have been baffled by the extension of the recent market rally. Late last week, we were not sure if it is sustainable at all and what may cause a sort of correction to flush out weak longs. Nobody foresaw such act of terrorism to happen – it was 10 months after the Charlie Hebdo case and one would think security will remain tight.

Last Week:

This week:

Looking at the CBOE Volatility Index, we can only speculate that it may overdrive higher into next week – creating a severe risk off sentiment. Mr Draghi will have to pull all stops during the ECB meeting to soothe the market and in our view, safe haven commodities will benefit from this – possibly a dead cat bounce.

Dollar Technical Outlook

With the overextended price action, the most logical trade is to fade the current strength. As the dollar index breached above its upper Bollinger band, it is sensible that profit taking will take place and we witnessed that last week. Technically, we could see a deeper pullback if price broke below the key support (what was strong resistance) but if we get any risk off sentiment and stronger Euro, dollar weakness may continue. However, given that we are 2 weeks away from a potentially more QE from the ECB – dips remain to be a buying opportunity.

“We were wrong as the NFP job numbers was well higher, increasing a rate hike expectations from 53% to well above 70% (last we check). Incredible how the pace changes in the currency market while equity market remain elevated – we can only assume that rate hike is either not priced in or simply ignored. The bullish momentum has been set for next week though we will be cautious on longs and look for an exhaustion point to end the week before a pullback.”

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Daily

Gold Technical Outlook

Weakness continues throughout last week as gold try to consolidate around 2015 low. Potentially a double bottom may be in store for a small bounce next week but we favour sellers to continue selling on any bounce. The outlook on gold remains weak and there is no fundamental reason to hold the yellow metal except for a possible spike in VIX. Any equity sell off may see a sliver of hope for gold to test higher in the short term. Additional QE from the ECB may help lift it but FOMC rate hike will dominate.

“Has the yellow metal priced in the rate hike scenario? Despite a definite hawkish comment, gold has yet broken July low – thus we raised the question if the sellers are soon running out of ammo. It is one scenario that we will take into consideration and will monitor closely what could be in store for gold as we head to the Live December FOMC meeting. The short term view is that after 8 days of selling – a pullback is due then traders will re-assess. Risk reward has changed to go long in our honest opinion.”

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Silver Technical Outlook

The October rally has ended and all the gains made are lost as succession of selling continues. Silver is back to test key support and September low with a potential triple bottom formation. This argument remains slim and a breach below opens the doorway for a new low. With lack of real economic growth and fundamentally too many long contracts – silver may need to flush lower in the coming weeks. We continue with a sell on any rallies and will use 20 wma as our guide.

“7 straight down days with no pullback whatsoever on the white metal but the bleeding seems to have stop at 14.70 levels for now. We highlighted in an older article that these price levels used to be the distribution phase before the run higher. There are many stops here but ideally we envisage a small rebound so the seller can resume with a force lower. We will wait for that short rebound to 20 wma and a bit higher to short again.”

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Platinum Technical Outlook

Commodities rout has returned to Platinum and price action seems to confirm that the long term outlook of any economic growth or pick up in the car industry looks rather weak. The tape says something is fundamentally wrong and this correction could continue until there is balance equilibrium. The daily chart indicates we are due for a small bounce to complete a wave 4 before the final wave 5 sell off. We will look to sell any bounce up to 930 levels.

“We have closed one of the short positions to lock in some profit whilst leaving the other one to run and moved stops lower. Once Platinum hit the target, we will look to reassess and look to pullback to re-enter short or have a short-term long to take advantage of any bounce. We have not forgotten the possibility of an inverse head and shoulder but with a weak economic situation and tightening by the Fed-the overall trend remains lower.”

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Palladium Technical Outlook

Gains made from 2012 have all vanished and the selling rout deepens from here on. Ironically, this paints a sad truth that the global equity market has continued to avoid the real truth that there is a big danger looming of another recession. With price action like this, the PGM industry look set to consolidate and cut back on workforce. The market is oversupplied and again need a rebalancing.

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