From the lows of 2016, prices have appreciated as follows:
I take a brief look at the technical setups for each of the 4 metals mentioned above.
Following a break of the long term downward trend in November 2016, we saw the price consolidate in a sideways to downward trend for the next 6 months, in a re-test of the breakout level. During early to mid June 2017, the price then resumed it’s upward trend, breaking through prior resistance level of 6353. At current levels, the price trades just below the prior swing high seen from April 2013 to January 2014. While the trend is higher, the technical indicator – Relative Strength Index – points to a potential pullback in the short term. While the price has moved higher, the RSI has not confirmed these highs and a break of the incline/upward trend could signal a change in short term trend – (pullback before the next leg higher).
Currently, the price is forming a rising wedge pattern which may be signaling the potential for a downside break over the short term term. This rising wedge comes after we saw a breakout from an 8-year upside consolidation break, allowing the price to appreciate from 2350 to the last close of 3548. The potential for a short term downside move is enhanced by the RSI which is moving lower higher while the price is rising. An image
Aluminum The price continues to trade in a strong upward trending channel after having bottomed in late 2015. Key resistance levels at 2113 and 2192 have also been broken and the price remains above a rising 40-week moving average. While the trend is currently higher, the price is nearing the swing high from March 2012 while the Relative Strength Index (RSI) is starting to show signs of a loss of upside momentum. An observation of the candle structure year-to-date reflects sellers starting to gain the upper hand although we may be in the early stages of a short term turnaround.
The weekly chart shows the price currently testing it’s downward trend line resistance from the swing highs in February 2011 and May to September 2014. This level also coincides with the prior support levels which was broken on the downside at 13219 and now serving as a current area of resistance. Here we could see a pullback before we break the long term downward trend.
A recent report from US-based Doubleline Capital also shows commodities have reached a bottom relative to the somewhat richly valued equities market.
Bottom Line: While prices are on a steady upward trajectory, we are encountering areas of resistance that may see prices pause or pull back before the next leg higher. Additionally, with inflation on the rise over the medium and long term, we may see these commodities follow suit.
Have a chat with the Unum Trading Desk to find out which commodity shares and ETFs (local and offshore) you should be adding to your portfolio.
With that we saw volatility, as measured by the CBOE Volatility Index rise to it’s highest level in over 4 years, testing 50 from a reading of 12 just 3 days prior.
MSCI All-Country World Equity Index vs CBOE VIX
Buy The CBOE VIX
Technically, we saw a break of the long term downward trend and with a re-test of the breakout level currently taking place, giving traders a second opportunity to take a long position.
Here, my idea would be to buy an Out-The-Money Call Option on the CBOE Volatility Index, taking a 6 to 8 week view with the expectation that we may see another move lower on global indices and another spike in volatility.
Buy OTM Call Option on CBOE VIX
Expiry Date: 18 April 2018
Underlying level: 20.60 (last close)