CRB INDEX: Short The Commodities

The strength in the US Dollar has an inverse effect to the commodities as investors flee from what is widely perceived as ‘safe heaven’ back into equities and the greenback; these are natural cycles in the financial markets. Whether the decade bull market run on the commodity market is coming to an end or not is too far for my telescope to reach but on the near term horizon the commodity index is clearly forming a bearish double top reversal pattern and its’ RSI negative divergence confirms this bearish top pattern.

A breakdown from this double top coupled with a bearish cross-over of its’ MACD below centerline presents ‘shorts trading opportunities’. The index first wall of support is its’ 2006 historic high which looks tough for the market to penetrate on first attempt hence it may be prudent for traders to cover short positions near this level; however, a break down from this support will accelerate the downtrend.

10yrs TREASURY YIELD: Biggest Rise in 48 Months

The Benchmark 10-year Treasury note yielded 3.76 percent last month, up from 3.43 percent on March, this is a spread rise of 9.6% (its’ biggest rise in 48 months) all due to speculation that the Federal Reserve rate-cutting campaign might be nearing an end, this help revive the sagging dollar and fuel the strong rally in the stock market that sent Dow Jones Index sharply higher 4.5% month-on-month.

However, traders are advised against counting out a potential rebound in Treasury prices (prices and yields move in opposite direction), because technically the bond market has yet to take-out key 21 years old downward resistance line and this is a precursor to a trend change.

The recent ’03 to ’07 bull market run on Wall Street, bond yields enjoyed the same boom as it broke out from its’ 21 years old downward resistance line but during the last leg of its’ bull run it formed a small bearish double top reversal pattern. And a broke-down from this bearish top pattern ended the bond market 4 years rally and eventually sent yields back below its’ downward resistance line.

Suffice to say, traders would want to see bond yields broke above its’ historic downward resistance line and more importantly consolidate above this downward resistance before it take-on its’ double top neckline resistance. Otherwise, failure to do so may soften the rally both in the US Dollar and the stock market.

Shanghai A-share Index: After the Bubble had Burst, Will There Be A Reflation?

The long awaited bubble burst in the Shanghai Index had finally burst as the index crashed 51.16% from its’ peak to recent trough, the next question traders have in mind is does the market found a valid floor at 3,000 level? Technically, 3,000 level has a strong historical basis of a valid support for the index, this area served as the first substantial consolidation area for the index prior to its’ bubble-like vertical rise. But this level has to be re-tested to confirm a valid bottom either in two ways: first, the index dropped again at this level and rebound then we have a double bottom or the index pull back and fill the gap it made last 4/24 then we have a higher low bottom.

However, the index may not take both possibilities because on a closer look using the line chart the index actually just broke-out from a small inverted head & shoulder reversal pattern last Wednesday; therefore, a re-test and consolidation above 3,650 support is more likely.

The index may open gap up on Monday, a normal spill-over of the strong upward momentum residue left last Wednesday and jump above its’ 50days moving averages but the index has to consolidate near 3,650 to build a strong base for its’ next leg up.

Hangseng Index: Lighten Up, As The Index Approaches 27,000

Four Black Candles out of the last Six Trading Days is an early signal that buying momentum is decreasing as the index slow down as it approaches key 27,000 strong resistance; likewise, average value turn-over dropped 16% week-on-week. Moreover, Hangseng ignored Shanghai’s 4.8% gains last Wednesday when it dropped 0.60%, these are technical signs of market exhaustion; therefore, it will be prudent for traders to lighten up long positions as the index approaches 27,000 level and pocket gains made for the week.

On the other hand, in the event 27,000 resistance is taken out by the index (which is unlikely), wait for the market to successfully re-test this level before entering new long positions; otherwise, wait for the index to pull back and re-test its’ 200days moving averages. There may be some swing trades opportunities at this level because of the high probability that 200MA will hold.

Hangseng Index Eased After Touching 26,000 Level

Shanghai A-share Index posted hefty 5.0% gain on upbeat earnings of key red chips but more importantly the index successfully took-out important 'key' 3,650 resistance; moreover, it established clear support at 3,460 level.







The market now has to reckon with its' 50days MA resistance or 3,840 resistance, these levels are not decisive resistance and it shouldn't be a problem for the index; however, it is better for the index to consolidate above 3,650 resistance line now turned support before it attempts to test another strong resistance (next to 3,650) at 4,200 levels.


Meanwhile, Hangseng Index retreated after momentarily touching 26,000 level and closed -0.60% lower at 25,755.30 on turn-over value of HKD 82.6B; property sectors were weak and mainland banks paused from its' sharp rise for the past weeks, however, power companies were quite bullish today.





Technically, 26,000 level is not supposed to be a resistance for Hangseng Index but 27,000 should be more valid and strong resistance for the index; subsequently, we should see the index test 27,000 level early next week.