Two Markets Close To Basket Case Status

• Commodities looking short-term toppy
• Copper close to a bear market signal that it may escape
• Oil trend is still positive but vulnerable
• Two markets close to a major breakdown

In a global stock market of predominantly long-term bullish charts, two country funds stand out as being on the verge of completing major tops. Being on the verge and going over are of course, two different things. However, before discussing these interesting items, I would like to talk about commodities, as this sector looks like it may be in the process of topping out on a short-term basis.

Commodities looking short-term toppy

The main trend for commodities, as we can see from Chart 1, is currently a bullish one. That’s because the DB Commodity ETF (DBC) is above its 12-month MA and its long-term KST is in a positive mode above its 9-month MA. The price is obviously facing an important test in the form of the 2008-2018 secular down trendline, so it would not be unexpected to see an imminent digestion of recent gains. Clearly, a break above the line would offer some evidence that a new secular bull market is underway. However, before that is likely to happen, the short-term charts are suggesting a pause or downward price correction.

Chart 1

Chart 2, for instance, compares the DBC to my Commodity Net New High indicator (which does not include Friday's sharp drop). Briefly, this series calculates the net new highs from a universe of commodities registered over a 10-day period. It is very much a short-term indicator as is apparent from its numerous swings. The red vertical lines tell us when the net new high series peaks from a position above the equilibrium level. Typically, this is followed by some form of correction, whether in terms of an actual decline, or some ranging action. As you can see, the March/May rally has gradually been experiencing fewer and fewer commodities registering new short-term highs. That’s probably because the ETF has a high weighting in energy, which has been particularly strong. At the moment, the short-term trend is positive because the price remains above its April/May up trendline. This is not a particularly significant one because it’s not that long and has only been touched twice. However, any violation, coming on the back of the negative net new high divergence, would likely result in a nasty shakeout, most probably involving a test of the two converging trendlines, just above $17.25.

Chart 2

Chart 3, shows a longer-term new high indicator. This one is based on 50-day look back period. The vertical lines flag periods when it reverses direction from at or above the red horizontal overbought level. Recently, it offered its seventh sell signal since early 2016. Friday’s drop has been quite severe. However, it has left a gap on the chart, which is likely to be filled, as most gaps are. When that will happen is anyone’s guess, but usually it happens within one or two weeks, but certainly do not bet the mortgage on that one!

Chart 3

Copper close to a bear market signal that it may escape

Chart 4, shows that one key commodity copper ($COPPER), remains in a primary bull market. That’s because it is above its 12-month MA and the long-term KST is also in a positive mode. However, it’s fairly apparent that it would not take much to reverse that status as the KST has gone flat and the price itself is only 5c above its MA.

Chart 4

Chart 5 leans against that possibility as the bullish short-term KST suggests that the 2017-18 trading range will be resolved on the upside. If it is not, and the price drops below the 65-week EMA at $2.95 that would strongly suggest that copper had begun a new primary bear market.

Chart 5

Oil trend is still positive but vulnerable

There was quite a bit of profit taking on Friday as the US Oil Fund (USO) gapped down and closed 4% lower. However, the 2017-18 up trendline is still intact, as is the 50-day line. That’s good as far as it goes, but the KST has just gone bearish from an overstretched condition. The red arrows warn us that KST sell signals have been reasonably reliable, even during that strong 2017-18 uptrend, which means that the current one should be respected as well.

Chart 6

Two markets close to a major breakdown

While many stock markets have been registering new highs in the last couple of years, Mexican equities, in the form of the dollar based, MSCI Mexico ETF (EWW) is closer to a multi-year low. Indeed, the whole period since late 2009 looks like a potentially massive top. It’s not yet been completed with a decisive month-end close below the red potential neckline at, say $41. However, the price is below its 12-month MA and the KST has just gone bearish. That kind of action is never a good sign.

Chart 7

Chart 8 shows that this ETF has completed its 2017-18 top. More seriously though, its relative strength line has touched a new secular low. It definitely looks as though the market is in the process of discounting some expected bad news from the July 3 presidential elections.

Chart 8

Another country facing elections is Turkey, shown in Chart 9 in the form of the MSCI Turkey ETF, the TUR. The price, like that of the EWW is very close to completing a top, having already violated its 12-month MA and experienced a long-term KST sell signal.

Chart 9

Chart 10 tells us that the RS line is at a new secular low and the KST for relative action, in the bottom window, has just gone bearish, not exactly a great looking technical picture.

Chart 10

Good luck and good charting,
Martin J. Pring

The views expressed in this article are those of the author and do not necessarily reflect the position or opinion of Pring Turner Capital Group of Walnut Creek or its affiliates.