Wednesday, June 2, 2010

Yesterday's Markets

Remember that yesterday I noted a split in the fundamental/technical analysis. Technically, the markets were moving into an undoing of the recent damage but fundamentally there was no driver.

Yesterday prices gapped lower at the open, buy quickly rebounded (a). They spent the rest of the day trading in a range (b), but then moved lower at the end of the day on news of more violence in the Middle East (c).

Treasuries were the exact opposite. gapping up at the open (a), then trading in a range a bit above the previous days close (b) before rallying into the close (c) on the same Middle East news.

The daily chart for the TLTs still shows a security that wants to reverse with an island reversal pattern (a) decreasing momentum (c and d) and a sell signal from te MACD (e).

Yesterday, Bloomberg had a very interesting article about the commodities markets:

The Journal of Commerce Industrial Price Commodity Smoothed Price Index reflects clearer signs of supply and demand than futures markets because half the items it tracks don’t trade on exchanges used by speculators, said Lakshman Achuthan, the managing director at the New York-based Economic Cycle Research Institute. The gauge dropped to 25.97 on May 28 from 60.56 on April 30.

In June 2008, a month after the index reached its peak, the Paris-based OECD said the U.S. would grow at a 1.1 percent rate the following year. Commodities continued to drop, and in October 2008, the index fell at a 56 percent annual rate, which was then the lowest level since 1949.

Almost two months later, the National Bureau of Economic Research, the panel that dates American business cycles, said the U.S. was in a recession. The world’s largest economy shrank 2.4 percent, the worst contraction since 1946.

Now, “the collapse in the commodity index is telling us that the peak in global industrial growth is imminent, it’s here right now,” Achuthan said. “Markets are going to have to deal with the reality of a slowdown.”

Manufacturing Indexes Slide

China’s Purchasing Managers’ Index slid to 53.9 from 55.7 in April, the Federation of Logistics and Purchasing said today. That was less than the median 54.5 estimate in a Bloomberg survey of 18 economists. A monthly gauge of manufacturing in the euro region fell to 55.8 from 57.6, Markit Economics said. The Institute for Supply Management said its U.S. factory index dropped to 59.7 in May from 60.4 in April.

Europe’s debt crisis is only starting to weigh on global growth, said Michael Aronstein, a strategist at Oscar Gruss & Son Inc. who predicted the 2008 commodity plunge and is betting against a rally this year.

It's important to remember there are two parts to the commodities markets: traders, who are simply looking to make a profit and industry participants who are looking to hedge their future risk through the use of futures. Regardless, consider the last article in conjunction with these two charts of industrial and agricultural commodities:

Industrial metals are in a clear downtrend with line (a) being the primary reason for the drop.

Agricultural commodities are also dropping and have three downward sloping trend lines.