Sunday, May 9, 2010

Weekly Fundamental & Technical Outlook for Energies and Metals - A Disastrous Week for Commodities

Greek sovereign crisis continued to grab the center stage last week. Investors remained skeptical about the ability of the110B-euro bailout plan in containing deficit problems in the country. Worse still, investors' confidence over bonds in peripheral European economies such Spain, Portugal and Ireland tumbled amid contagion fear and downgrades by rating agencies. Yield spreads and CDS rose sharply.

Comex Gold (GC)
Gold's rally continued last week and reached as high as 1214.8. Initial bias remains on the upside and further rally could be seen to 1227.5 high. However, as note before, we're treating rise from 1044.5 as the second wave of the consolidation from 1227.5, we'd expect strong resistance at 1227.5 to conclude the rise from 1044.5 and bring reversal. Below 1193 minor support will flip intraday bias back to the downside first. Further break of 1156.2 will turn outlook bearish for a test on 1044.5 support. Though, note that decisive break of 1227.5 will confirm up trend resumption for 1300 psychological level next.

In the bigger picture, our preferred view is that price actions from 1227.5 are consolidation in the larger up trend with first leg completed at 1044.5. Rise from there represents the second leg and should conclude after being limited by 1227.5 and bring the third down leg towards 1044.5. However, note that sustained trading above 1227.5 high will indicate that the correction has indeed completed at 1044.5 already and long term up trend is resuming. In such case, Gold should target 100% projection of 931.3 to 1227.5 from 1044.5 at 1340.7 next.

In the long term picture, rise from 681 is treated as resumption of the long term up trend from 1999 low of 253 after interim consolidation from 1033.9 has completed in form of an expanding triangle. Next long term target is 100% projection of 253 to 1033.9 from 681 at 1462 level. We'll hold on to the bullish view as long as 931.3 structural support holds.

Nymex Crude Oil (CL)
Crude oil's sharp fall last week indicates that rise from 69.50 is completed at 87.15 on a double top reversal pattern (87.05/87.15). Initial bias remains on the downside this week and further fall should be seen to test 69.50 key support next. On the upside, above 78.19 resistance will argue that a temporary bottom is formed and bring consolidations. But we'd expect strong resistance at double top neck line (80.53) and 4 hours 55 EMA (now at 81.55) to limit upside and bring fall resumption.

In the bigger picture, as noted before, 33.20 is viewed as a correction to the whole correction that started at 2008 at 147.27. Such rise might have completed at 87.15 already, ahead of 50% retracement of 147.27 to 33.2 at 90.24. Break of 69.50 support will break the series of higher low pattern from 33.2 and will be an important indication that the trend has reversed. In such case, we'll turn bearish on crude oil and expect the then down trend to target a new low below 33.2.

In the long term picture, there is no change in the view that fall from 147.27 is part of the correction to the five wave sequence from 98 low of 10.65. While the rebound from 33.2 is strong and might continue, there is no solid evidence that suggest fall 147.27 is completed and we're still preferring the case that rebound from 33.2 is merely a corrective rise only. Having said that, strong resistance should be seen between 76.77/90.24 fibo resistance zone and bring reversal for another low below 33.2 before completing the whole correction from 147.27.

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