Saturday, December 27, 2014
GTX Goldman Sachs Commodity Index (GSCI) Daily Chart Oversold Falling Wedge Positive Divergence Weekly Chart Oversold Setting up with Positive Divergence
The GTX collapses over the last few months as commodities in general fall down the rabbit hole. China's multi-year and decade growth pattern is waning and demand for commodities are dropping across the board. Oil is a notable loser in recent months collapsing into the 50's for both WTIC and Brent and natty gas just lost the 3.00 level on Friday for the first time in two years. Analysts keep pounding the table blaming the price drops on oversupply but this is only part of the equation as is easily seen by the GTX. GS's GSCI Index is a diversified product index made up of energy, industrial metals, precious metals, agriculture and livestock plays. Granted the largest portion of the GTX is the energy sector so it is proportionally pounded lower due to oil weakness but the other commodities play a part in the drop and those are demand issues in addition to supply concerns.
On the daily chart, the trend lower is strong as shown by the long pink box. The black circle shows the death cross that ushered in mayhem. The green lines show universal positive divergence so the drop is over for the daily time frame and price will recover. The pink dots show price extended to the downside so a bounce is needed. Other bounces tagged the 20 MA at a minimum which is now at 3526 and falling so this serves as an upside target. The weekly chart is agreeable to a short term bounce with the oversold and positively diverged stochastics, however, the RSI, histogram and MACD line remain weak and bleak so lower lows in price are likely ahead after the near-term bounce occurs from now into mid to late January. The pink box on the weekly chart shows that the downward move in price is a strong trend.
Weak commodities point to a deflationary outcome ahead for the globe even though no one wants to talk about it. The European deflation will likely be exported to America in 2015. If you are a nimble trader look into commodity plays for a long-side bounce as long as the charts are set up like the GTX daily chart above. Any gains must be taken without getting greedy since the weekly chart should reexert weakness in January or February after the near-term bounce plays out on the daily chart.
Since a bounce is on tap for GTX that tells you the dollar is going to pull back for a much needed rest; thus lower dollar moves commodities higher. For the last few weeks, the dollar has spiked parabolically higher sending commodities into the toilet. Most commodities are priced in dollars creating this strong linkage. Since the dollar will drop as commodities bounce, this will send the euro higher and cause concern from ECB President Draghi who needs a lower euro to spur the flailing European economy. Thus, the dollar weaker-euro stronger-commodities higher pattern may continue into the ECB meeting on 1/22/15 where Draghi is expected to fire the full-blown QE money bazooka with a sovereign bond-buying program. An ECB QE program will pummel the euro lower and send the dollar higher. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.