Commodity prices: bullish divergence

By Colin Twiggs
October 10th, 2013 2:30 a.m. EDT (5:30 p:m AET)

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Commodity prices continue to display weakness, with a tall shadow on the latest Dow Jones-UBS Commodity Index weekly candle. But the Shanghai Composite Index is strengthening and bullish divergence on 13-week Twiggs Momentum suggests a reversal. Recovery above 130 would signal a primary up-trend.

Rising commodity prices would be good news for resources stocks.

Dow Jones UBS Commodities Index

* Target calculation: 130 + ( 130 - 125 ) = 135


Spot gold respected the declining trendline. Breach of short-term support at $1280 per ounce would indicate another test of primary support at $1200. A 13-week Twiggs Momentum (not shown) peak below zero would be a strong bear signal. Respect of support, followed by recovery above the recent high of $1330 is unlikely but would complete a small double-bottom, indicating the correction is over.

Spot Gold

Crude Oil

Nymex light crude followed through below $102/barrel after breaking support at $103, confirming a test of medium-term support at $98/barrel. The wider spread with Brent Crude reflects continuing tensions over Syria which threaten supply.

Brent Crude and Nymex Crude

Dollar Index

The Dollar Index is consolidating below its new resistance level of 80.50. Follow-through below 80 would confirm the primary down-trend. The 13-week Twiggs Momentum peak at zero also signals a down-trend. Recovery above 81 is unlikely, but would warn of a bear trap.

A falling dollar would boost gold prices.

Dollar Index

The yield on ten-year Treasury Notes is consolidating between 2.60 and 2.70 percent. Recovery above 2.70 would signal an advance to 3.40 percent. Failure of support, however, would warn of a test of 2.40 percent.

Rising treasury yields would raise the opportunity cost of holding precious metals, exerting downward pressure on prices.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 - 2.60 ) = 3.40

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