Commodities – Iron Ore, Brent Crude, Platinum, Palladium, DBA, DBP, DBB, Agriculture over Global Equities
At current levels, the price trades at the lower boundary of the long term bull channel in place January 2016. Whilst the test of support may lure potential buyers, traders should take caution that a potential break of horizontal support is imminent, with the price having made lower highs over the last 7 to 8 months. It should also be noted that the Relative Strength Index currently trades just below the 50 level which is indicative of a shift to a weakening bias. In terms of key levels, a break below $80 would opens up the commodity to the next support zone of $64.
Brent Crude Oil
Monthly. $35 to be monitored. Dec-2008 & Jan 2016 the level acted as support. Now, as was case in Oct-1990 & Sept-2000, it’s serving as a distribution zone. Long term $24 must be monitored as support. A loss of this sees $19.20 open up as a target.
The metal faces a technical overhead supply at the long term (prior support zone of $775). With the primary usage of the metal being in jewelry and auto catlytic converters, the global shutdown and economic disruption would, in my view, suppress demand for the metal in the short term.
The metal continues to decline from it’s parabolic highs, having tested the lower boundary of the bull channel formation as per the month chart. I am expecting a retracement to the mid-point of the channel at approximately $1500 per ounce.
DBA starting to outperform DBB
On a relative basis, the agricultural commodities ETF (DBA) is starting to out-perform the Base Metals ETF (DBB), most likely indicative of the shift in the demand from infrastructure assets to food assets (perhaps one could also see it as survival over growth as food hoarding takes place).
DBP new highs relative to base metals (DBB)
Chart suggesting current concerns around global growth, as well as the supply/demand dynamic taking place in the precious metals space (palladium).
DBB – base metals at 11-year support
If it gives way, we are going to see lower prices. What may the key drives be? (1) Strong USD – always a headwind for commodities. In addition, with the global PMIs having been substantially weaker, the expectation of lower global growth just adds to the fuel of lower prices.
Agricultural Commodities Over Global Equities
I think that this is a chart market participants should really pay attention to. Agricultural Commodities ETF (DBA) reversing a 9 year relative bear trend vs Global Equities (ACWI). Strong price action upon the breach of the trend line resistance. RSI breakout & bullish divergence. Monthly chart suggesting DBA to outperform ACWI on a relative basis.
Trading Desk Analyst
Unum Capital (Pty) Ltd
An Authorised Financial Services Provider (FSP 564)