Commodity and Financial Markets Cycles Analysis

Hugh Hendry of Eclectica Asset Management and Gary Shilling of A Gary Shilling Company are bearish on China, and the world. We must pay respect to both of these market players as they have had an abundance of correct market calls in the past. Their opinions are contrarian, so for trends to change, major cycles must be ready to roll over. Lets review a few...

First, how can market cycles roll over in a world undergoing massive quantitative easing (QE1 and QE2)? Is it possible that the US Federal Reserve as tamed the market so that there is no more pullbacks, swings or cycles. The US has experienced 'the before/during' quantitative easing (QE = money printing), and has yet undergo the 'after'.  A quick review of the 'before' and 'after' effects on the N225 from quantitative easing during Japanese great deflationary bust shows that the 'after' can be very unpleasant.

N225 Chart

We can see the N225 rallied hard during each of the Japanese quantitative easing (QE) periods. However when QE ended so did the rallies. The American QE programs have been back to back (2009 and 2010), unlike the Japanese experience. One can only imagine what will happen to the worlds financial markets when the American QE ends, if it is anything like the Japanese experience then I fear that the cycles rolling over will be very severe. Copper, Australian and Canadian dollar have all enjoyed strong bullish cycles. They will be our subjects.

The Australian Dollar and Copper are two securities that are aligned to China success story. Copper has been used heavily within Chinese construction industry, and Australia has supplied much of it to them, along with steel, coal, etc. Any hick up with China's story and these two securities will roll over hard. China cannot sustain 10% GDP growth without exports to both Europe and USA. Yet the America and Europe economies have lived off QE to support their GDP growth. What if the QE stops or paused for a few years, what then. If growth cant be maintained without QE, what will happen to the Australian, Canadian dollar and copper cycles, that is easy they will roll over hard !

We all now that the rise and fall of the US dollar as much to do with the cycles below, markets are very correlated. Comments on the US dollar can be found here: US Dollar currency, short term bullish, long term bearish not so sure

NOTE: The cycles found the charts that follow were found with RTT Cycle Finder Spectrum.

Australian Dollar (AUDUSD)

Copper in US Dollars

Canadian Dollar

For the world to avoid these cycles rolling over during 2011/12 quantitative easing would need to be continuous. Its too early to say how or when stimulus Keynesian polices will end, I fear that they never will. As the politicians and central bankers have enjoyed this economic power, and power does corrupt.

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6 Charts Which Prove That Central Banks All Over The Globe Are Recklessly Printing Money

If the U.S. dollar is being devalued so rapidly, then why does it sometimes increase in value against other global currencies?  Well, it is because everybody is recklessly printing money now.  The 6 charts which you are about to see below prove this.  The truth is that it is not just the U.S. Federal Reserve which has been printing money like there is no tomorrow.  Out of control money printing has also been happening in the UK, in the EU, in Japan, in China and in India.  There are times when one particular global currency will fall faster than the others, but the reality is that they are all being rapidly devalued.  Unfortunately, this is a recipe for a global economic nightmare.

Right now you can almost smell the panic as it rises in global financial markets.  Investors all over the world are racing to get out of paper and to get into hard assets.  Just about anything that is “real” and “tangible” is hot right now.  Gold hit a record high last year and it is on the rise again.  In fact, it just hit a new five-week high.  Demand for silver is becoming absolutely ridiculous right now.  Oil is marching up towards $100 a barrel again.  Agricultural commodities have exploded in price over the past year.  Many investors are even gobbling up art and other collectibles.

http://www.dailymarkets.com/economy/2011/02/21/6-charts-which-prove-that-central-banks-all-over-the-globe-are-recklessly-printing-money/

EW: @IHSG & DJIA (Top Reversal Minor) vs Gold & Oil (Bottom Reversal)???

IHSG Volume Bar: Demand yang menipis, berpeluang koreksi kembali ke 3.387-3.336. Potensi kenaikan terbatas di pekan ini.

IHSG EW Daily: Kondisi overbought (stochastic crossover sell), chart 4 jam menunjukkan bearish continuation target 3.387/3.336/3.309

DJIA Daily: very overbought, stochastic divergence sell, mendekati target sell 12.400 (high 12.391:18/02), potensi koreksi ke support 12.158/11.981.

Oil Daily: kondisi bottom reversal, menuju target resist 97/98/100, selama bertahan diatas 88.40

Gold Daily: berpeluang menuju resist 1431 record high, jika tembus ke 1.471/1.510.

S&P 500 /DJIA Technical Chart Analysis: Powerful Wave 3 Bull Market Rally Not Over Yet

SPX Chart Analysis
Wave ii was essentially a zigzag (more noticeably a zigzag in other indices) and the proposed wave iv is a clear flat, so there would be alternation. But the November decline lasted a month and the late January correction took less than two weeks.

The SPX futures chart shows that the proposed wave iv tagged the lower rail of the uptrend, which gives more credence to this count:

We can also see that three Fibonacci extension targets converge in this area, suggesting that some kind of top could occur there.

A somewhat more bullish scenario calls for a correction of a lesser degree in the 1340 area followed by a rally to a cluster of Fibonacci targets in the 1500 zone for a Wave 3 top. The penetration and weekly close above the rising blue trendline suggests this scenario may have some validity.   After consideration of all currently available data I am tending to lean towards this scenario.

The bearish count could see a C wave top at any time. Any break of the uptrend off the September bottom would put this scenario in play.

The 161.8% Fib extension of the proposed A wave comes in just a few points shy of the 2007 high, so its conceivable that Wave 2 could retrace nearly 100% of Wave 1 before failing in a Wave 3 bear market.
http://www.dailymarkets.com/stock/2011/02/20/sp-500-technical-chart-analysis-powerful-wave-3-bull-market-rally-not-over-yet/

Turmoil in the Middle East: Will Saudi Arabia be Next?

With the recent turmoil across North Africa and the Gulf, investors are now becoming increasingly concerned that the ‘political contagion,’ as the wave of upheaval has come to be known, may flow over into Saudi Arabia as well. The worry is that the protests in various parts of the Arab World will embolden Saudi youths, or the minority Shiites in the east, to revolt in a similar fashion.

The country supplies about 12% of global oil production and sits on at least a fifth of the world’s oil reserves.

By being on the eastern border of the Kingdom, Bahrain is near key parts of the country’s crude reserves. Although doubtful that Saudi Arabia would be drawn into the contagion, “the fear factor could potentially force oil prices higher and leave the equity markets lower”, Gary Dugan, CIO at Emirates NBD, told CNBC.

http://www.cnbc.com/id/41690671?__source=aol|headline|other|text|&par=aol

Other Sources:
http://story.arabherald.com/index.php/ct/9/cid/940f2bfd509e743b/id/43129731/

Kilduff: When It Comes to the Middle East - Saudi Arabia Is Key
http://www.cnbc.com/id/41663928

Middle East Turmoil: Is Saudi Arabia Next?
http://www.frumforum.com/middle-east-turmoil-is-saudi-arabia-next

Middle East Turmoil: Saudi Arabia Apart From The Rest?
http://www.mepc.org/articles-commentary/commentary/middle-east-turmoil-saudi-arabia-apart-rest

TURMOIL IN THE MIDDLE EAST: IS SAUDI ARABIA NEXT?
http://eu-digest.blogspot.com/2011/01/turmoil-in-middle-east-is-saudi-arabia.html
http://www.theburningplatform.com/?p=10317

Turmoil in the Middle East: Bahrain's Revolution
http://www.thenewamerican.com/index.php/world-mainmenu-26/africa-mainmenu-27/6374-turmoil-in-the-middle-east-bahrains-revolution

Protests Weigh on Gulf Arab Stocks
http://www.cnbc.com//id/41696109

Saudi Stocks Drop for a Fifth Day on Growing Unrest
http://www.bloomberg.com/news/2011-02-19/saudi-stocks-drop-for-a-fifth-day-on-growing-middle-east-unrest.html