Submitted by Nic Lenoir of ICAP/Zero Hedge
We are back to our same observations of last week. Copper has tested again the former bullish channel’s trend support now resistance and failed. A close today below 239.95 would have triggered a bearish engulfing day but it was not the case. We are also very close the highs of early January. Interestingly the Chinese PMI wich is very highly correlated to Copper has rolled over (the chart showcasing the copper/Chinese PMI correlation is missing March data with a PMI of 52, worst than expected). Hence economic data is not validatng these new highs. There is an earthquake effect but given the very high inventories we doubt that a short squeeze is a real possibility at all right now.
We draw a parallel with USDCLP. The Chilean peso has appreciated against the USD and we have reached the buy zone for USDCLP at 505/510. We see on the chart that we saw the C=A from the highs almost to the tick (see zoom chart), and by the same token tested the reisstance of the former bearish channel now support (the parrallel with Copper is obvious). We bounced from that level and are profected to close just about at the 61.8% retracement of the rally since this year’s lows. We are buyers here and would consier a daily close below 495 as a stop in order to play 584 or higher.
Similarly USDCAD is exhibiting bullish divergence and is testing the support line joining the lows. We feel the market is either in the process of finishing its bottoming process or in a triangle consolidation, but either way we would play a bounce here towards 1.0750 which should be the key confirmation level for further upside. A daily close below 1.02 would invalidate this bullish scenario however.
Equities give a less clear picture but correlations have been a lot lower of late between commodities and equities. The Dax index looks like it is completing a bullish impulse and has reached our key target of 5,890/5900. We feel it is possible the market will test 5,928 but a we do not favor more upside at this point and would look to be sellers at that level. A close above 5,950 would make us reconsider this stance however. On the other end the S&P future has bypassed 1,122/1,129 so we are now looking for a retest of 1,150. Note that the Vix doesn’t appear to be close to give us a sell-S&P signal. We would need to see a bit more consolidation for the Vix and a false break before the lower Bollinger band to indicate a significant bearish leg is on the way. This is not the case yet.
Good luck trading,
Nic
