RBS : China Commodity and Equity Price Trends

From RBS Research / Greg Gibbs

Can S&P remain divergent from everything else?

Corn : Sell

• Looks like a SHS top.
• Broken neckline and now pulled back all the way for a good risk/reward short around 650.
• Unfortunately, purely academic for me now. Only have demo account to play with. Sold there but really meaningless when you have no real skin in the game.

Copper : Where to Sell?

• This has been "insanely volatile" recently. Shanghai composite index recovery after falsely breaking 2320 a major contributory factor.
• Monthly and weekly charts, however, still in high confidence bearish mode.
• Question remains one of trade location, not direction. My guess is .. now.

Gold : Re-drawn Line, Breaking Again

• Fresh sell signal again. 
• With the lower wedge line redrawn, the pattern looks much better now. Higher confidence that this will work.
• Breaks that occur by default ie sideways move until apex of triangle is reached, are usually useless.
• Early breaks such as this one, in the middle of the triangle, are much more reliable. A close below 1626 today would be good.

Copper : Watch China (SSEC 2320)

• Copper daily chart breaking down (see red cirlce).
• Am still targeting 272. How we get there (eg do we form a weekly triangle first) obviously depends a lot on developments elsewhere eg EU impact on Risk On/Off.
• One factor which could help make this an easy trade is China. Chart of Shanghai Composite included here. Closed at 2377 today. Key support not far below at 2320, already tested unsuccessfully once last week. 
• If SSEC breaks 2320, then Copper will probably go straight down in tandem. If not, then expect more chop in reaction to Europe stabilization package news. 
• Whichever it is, short is right. My life would be much easier if China 2320 goes though.

Gold : Daily Bear Flag Break

• Flag pole 1816-1534 = $282 length.
• Downside break finally arrived today (?).
• Break point 1676, which puts downside objective at 1394.
• The break is a bit too near to the tip of the flag for my liking. Nevertheless, it seems to be occurring with reasonable downside momentum, which is more important.
• Let's see how well this works. What I hope for is sustained downside momentum.

Soybean : Updated Chart

• Charts self-explanatory.
• There can be no better time to do this.
• Target : 1060.

Gold : Daily Bear Flag

• Nice chart, although past experience shows that the perfect looking ones usually don't work.
• Still, have a look at this near classic bear flag on the Gold daily.
• Taking 1816-1534 as the flag pole (length 282), and assuming downside break at 1632, this projects downside target at 1350.

Copper : Added to Short @ 332.40

• Yesterday was a brutal day for me on Sarkozy/Merkel bank recapitalization plan without details. Guess market was over-extended and ripe for a squeeze which caught me by surprise not so much that it occurred but by its sheer power (speed and magnitude).
• Nevertheless, however I look at the charts (eg AUD), I see strong downtrends for Risk. Expect resumption of Risk Off in due course.
• Sticking to game plan to continue re-building positions squared last week. Confidence obviously shaken so proceeding at a much less aggressive pace than originally planned.
• Sold HGZ1 @ 332.40, adding to short. Still target 272.50.

Copper : Re-Sold @ 324.10

• 2 decent runs in the short Copper trade [Round 1 (381-322) initiated 20Sep11 and Round 2 (339-307) 27Sep11] recently.
• Round 3 now. Initiated fresh short at 324.10 as part of overall strategy of stepping up Risk Off into this general bout of optimism about a co-ordinated solution being formulated for recapitalization of European banks.
• Expect 272.50 to be reached.
• Other trades re-established include US Ten Years and USD/CAD. All new trades under water at the moment.
• Bullets not all spent yet.

Gold : Gone Short at 1670

• Wiped bad memory of "almost champion" trade at 1893 out of my mind now.
• Fresh perspective, baggage free view. Just sold at GCZ1 at 1670.
• Monthly : A healthy bull market does not put in large reversal candles like the one we just had in Sep. This is at best sideways. But I think its going down. Also in the back of my mind is the example of the recent silver bubble burst. Expect the gold candles to trace out a similar path to that of the silver crash. Crowd behaviour never changes.

Soybean : All In Short at 12.255

• New low of this strong downside break being made below 1226 (where we saw a strong bounce all the way to 1278.75 yesterday).
• Gone full in risk limit short at 12.255 via sell stop-in triggered. Used up my overall pyramiding privileges with this.
• Average in rate on the bigger position is 1258.
• [Copper is collapsing (-7% on the day) as well due to increased margin requirement again. Was a great switch yesterday from -ES to -HG].

Soybean : Exciting Times

• Here's a market for a chartist to really salivate over.
• Monthly : Topped out via a long consolidation rectangle. Bottom has now fallen out. Downtrend just started.
• Weekly : Reverse periscope being made now. Downside objective at 1105, about 12% lower.
• This is certainly helped by the strong USD move. Unfortunately I know nothing about the fundamentals of the soybean market. Even worse now that my occasional supply of the Gartman Letter has completely dried up. Still, I have complete faith in the chart so its not necessarily a handicap to not understand the fundamental drivers.
• Trade : Short at 1274.50 average. Stop loss close above 1292.

Gold vs Silver

• Original plan to buy Gold into dips, starting from around 1576. Changed my mind after looking at Silver chart, even though Gold and Silver fundamentals are different (eg Silver has industrial uses).
• The key - crowd psychology is invariant across markets. Both have reversed parabolic rises. Subsequent behavior should be similar.
• Silver : after making high of 49.50, large black candle the next month confirms trend reversal. A = (49.50 - 32.30). B = (32.30 - 44.10). C = (44.10 - ?). Thus far, 29.80 low. The easy play is on the short side, as that is the trend side.
• Gold : is now where silver was the month after the 49.50 high was made. Having missed the short trade, I am not inclined to join in in the middle now. Will stay dis-engaged until I see the B wave, even if it means a wait of 3-4 months. Given how much everyone still wants to own Gold, a deep meaningful rally once this current cash raising to meet margin calls phase is completed, is definitely possible. But the long term trend has changed. And I only want to trade with the long term trend, not the intermediate.
• This squares with my view of a multi-month USD rally.
• If one simply has to buy, 1447 looks a more sensible level. 
• It is very possible that Gold @ 1920 = lower degree of Nikkei @ 38947 or Nasdaq @ 5132.

Soybean : Initiated Short @ 1288

• Monthly : Topped out. Now breaking below significant support at 1291.
• Weekly : One of my favorite trading patterns = periscope = saucer bottom followed by a lone hollow candle pop up. Soybean is doing this now, except in mirror image along the X-axis. Let's call this a reverse periscope.
• Trade : Sold Nov beans at 1288 early this morning. Only in small so I can leave it on auto-pilot.
• Risk : Have reduced risk (taken profits) on much of non-core risk positions (copper, corn, TY) to auto-pilot levels. Reason is to concentrate attention on managing large core positions (SP500, CAD and EUR) well. SP500 and EUR have given fresh sell signals but having come off so much already, do not expect sell-offs to continue without some head fakes. Focus, focus, focus.

Corn : Taken Partial Profit @ 677

• Short 3 units of CZ1 at 739 average.
• Taken partial profit on 1 unit at at 677.
• Expect some support at 668.75. Maybe wait to see reaction from there and then look to re-establish short during/after period of consolidation. 
• Target 575.5 on weekly chart.

Copper : Risk Off Big Time

• Dr Copper indicating significant Risk Off going on (China, Aussie).
• Monthly, weekly and daily charts all sliced through downside support like a knife through hot butter.
• Already positioned Risk Off so no new trade taken here. Posted only to reinforce soundness of existing positions.

Gold : Game Plan

• Was short at 1893 but got taken out for only a small profit as confidence was shaken by unfortunate circumstances.
• Monthly : Single black reversal candle is not be a reliable sell signal in itself. Respect uptrend still until a more reliable top is confirmed by a formation of several candles. Big picture = uncertain, stay out. Parabolic top = huge down possible anytime.
• Weekly : Going down.
• Daily :Double top around 1920. Neckline 1702. If confirmed, $200 worth of downside to $1500 possible.
• Plan : Can't bring myself to sell now having just snatched defeat from the jaws of victory. Re-establish long (ETF) only from around $1576 downwards, if ever. Remember parabolic corrections will almost always over-shoot.
• Lesson : Remember there is never "this one is different". Similar experience (spread can't possibly go negative) in ED spreads in August. Trust the charts and only the charts.

Corn : Added short @ 722

• Only 1 order filled while I was away, pyramid add to short corn.
• Initial trade short 2 units at 747.
• On the daily chart, significant previous top at 722.75. Stopped in additional 1 unit on the break, filled at 722.

Gold : SNB Fallout

• SNB peg commitment killing safe haven status of CHF. Would have expected other safe havens eg Gold and JPY to rally on substitution demand. But no, both are weaker after SNB announcement. Even EUR a lot softer as well (even though SNB is supposed to be defending EUR/CHF floor).
• Possible explanation : Dumping of long CHF = large scale buying of USD, thus putting pressure on all the counter-instruments, including Gold.
• Whatever the case, technical traders are not supposed to be trading on logic. Price action over-rides all else.
• Monthly : Still positive in spite of recent volatility. Only the large divergence between price and moving averages is signalling caution.
• Weekly : As per monthly.
• Daily : Only on this lowest time frame is change being flagged. The probability of a double top here is getting higher. Trend reversal is not confirmed until we get below say, 1750, by which time the weekly and monthly would be telling a very different story.
• Awaiting daily price action to change outlook for the higher time frame charts. Until then, holding onto small speculative short at 1893 and NOT increasing position.
• Personally, I think the SNB is playing with fire by drawing a line in the sand. High risk move, although it is of course much harder for speculators to take on a central bank intent on weakening its own currency rather than other way round.