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.

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

Gold

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.

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.

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.

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.

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

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