Market Wrap: 7 June 2013 – US equities remain in uptrend, palladium decouples from other precious metals & the Aussie dollar drops sharply

This regular column reviews the condition of several different markets including: stocks, commodities, currencies and precious metals. This week focuses on the Wilshire 5000, West Texas Intermediate crude oil, palladium, and the Australian dollar.

Stocks

Wilshire 5000

The chart below shows the Wilshire 5000 – the broadest index of US equities – with some simple trend channels overlaid on top. Although the blue uptrend channel has been pushed lower on two occasions (circled in red), the index remains in the powerful uptrend that began in November 2012.

The chart also shows the original position of the lower uptrend line (turquoise dotted line). Under the rules of Trend Channel Analysis (TCA), the lines encapsulating a trend are always parallel, however it’s possible for either line to be nudged without the major trend being violated.

A 1 year (daily) chart of the Wilshire 5000 (Click on the chart for a larger version)

A 1 year (daily) chart of the Wilshire 5000 (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

The continued uptrend is confirmed by the 20-day and 45-day moving averages which are also shown on the chart. These crossed to give a buy signal in mid-December and are yet to issue a sell signal.

Commodities

WTI (West Texas Intermediate) Crude Oil

Having broken down out of its multi-month triangle consolidation pattern back in April, the US oil bench mark, WTI, rallied and has once again re-established the pattern.

The pattern which was mentioned previously here and here, indicates that the battle between the bulls and the bears is intensifying and that pressure is building. What this typically means is that sooner or later the price of crude oil will breakout sharply in one direction or the other.

The chart below shows the pattern in crude oil with the April dip circled in red. The chart also reveals the beginning of a larger scale triangle pattern in WTI which could give us a target for a breakout from the smaller-scale pattern.

A 3 year (weekly) chart of WTI (Click on the chart for a larger version)

A 3 year (weekly) chart of WTI (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

Precious metals

Palladium

In the mid-April commodities smash oil, gold, silver, platinum and palladium all fell sharply. Since then however, palladium has decoupled from the other precious metals, particularly gold and silver, and has rallied by 17.6%.

A 1 year (daily) chart of Palladium (Click on the chart for a larger version)

A 1 year (daily) chart of Palladium (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

Although it remains around $200 below its February 2011 high of $862, and well below its January 2001 all-time high of $1090, the outlook for palladium remains very positive.

Currencies

The Australian dollar

Since reaching an intraday high of $1.0583 against the US dollar on 11 April the Australian dollar has dropped 10.3% and is now trading at the lowest level in more than two and a half years.

A 6 month (daily) chart of the Australian dollar (Click on the chart for a larger version)

A 6 month (daily) chart of the Australian dollar (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

The sudden drop in the exchange value of the Aussie dollar has been blamed on economic weakness in China and a “tepid” domestic recovery.

As David Franklin of Sprott Asset Management noted recently, “evidence has been mounting that the Chinese economy is losing momentum. The final reading of the HSBC China manufacturing Purchasing Managers’ Index (PMI) for May fell to 49.2, down from a preliminary reading of 49.6, and below April’s reading of 50.4. A result below 50 signals a contraction and the May reading was the first below 50 in seven months. In a recently published report, quoted by MarketWatch, JP Morgan stated that, ‘Overcapacity and declining rate of return on investment are the top challenges in the manufacturing sector, and may continue to drag on China’s economic growth in the medium term.’ The potential slowdown in China, the biggest buyer of that country’s minerals has sparked a reappraisal of Australia’s economic prospects.”

The condition of Australia’s domestic economy has also been weighing on the currency. The latest GDP figures show that economic growth has slowed to just 2.5%, the weakest level in two years, and the nation’s manufacturing sector has been contracting for a total of 15 months.

The recent decision by the Reserve Bank of Australia to cut interest rates to a record low of 2.75% has also put downward pressure on the Aussie dollar and the outlook for the currency remains negative.

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