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Welcome to 2012 and the Safety in the Market Monthly Newsletter. I hope you have enjoyed the festive season and found time to set some goals and outcomes for your financial well-being this year.
The story of 2011 was largely one of concerns in Europe and that sentiment is likely to play heavily on the markets again in 2012. The fears that have been present since the GFC are still lingering in different shapes and forms so we need to assess the year ahead - good, bad or indifferent. I think that in 2012 the trader who can spot opportunity across any market be it local or international will be best placed to profit, the other side of the coin will be locking in profit at appropriate levels if we see volatility shifts as we did in 2011, which could mean that trends are short-lived.
The end of 2011 showed how frustrating a sideways market could be as we saw the SPI200 banded in the range of 4000 to 4400. In chart 1 you can see the broad sideways pattern followed by the smaller series of sideways moves from mid-December. At the time of writing we are closing in on the 50% (4198) level of this band so what happens from here could be a good indicator of what’s to come.
Chart 1 – Daily Bar Chart SPI200
click chart to enlarge
Going back to late 2011, I was of the opinion that we could see a rally from the December Seasonal date into early January. A quick check of January 10/11 or thereabouts over recent years shows how this date in the market has proven to be a reliable area to watch for a change in trend.
The push from December 20th was initially encouraging but fizzled out quickly into a sideways market. This move is in step with a lot of the Asian region exchanges, but differs greatly from the US and Europe which have seen good rallies in the Christmas period of approximately 8% on the SP-500 and the FTSE.
click chart to enlarge
click chart to enlarge
It’s well worth analysing these charts as they are now pushing against upside resistance that has been in place for some months now, a push above could see the markets spring into a short-lived bullish move. Traders would do well to look at their resistance cards, highs, lows and ranges to assess where these current highs sit. A quick check of repeating ranges would also provide some insights as to whether we are in the springtime or potential winter of this move.
The big question likely to impact our two-speed economy is the slow down in China and the potential for commodities prices to take a nosedive. The big factor that has been driving a weaker commodities price is the returning strength in the US Dollar.
A review of the dollar index chart DX-Spotv shows it pushing to fresh highs in what might be a second section. If a market is exhibiting strength in the second section you often see it expand to 125% or 133% of the first range and this is a possible scenario at play. We are currently poised at 100% of the previous range so a telling time is about to unfold.
Chart 4 – Weekly Bar Chart DX-Spotv
click chart to enlarge
Finally, for those who are keen to follow the commodities space through direct contracts or the shares on our exchange that are in the commodities space, you would be wise to track the GI-Spot, a commodities index that serves as a general guide to commodities pricing. In this chart you see the resistance line I have drawn over a broad period that has contained prices. If the US dollar index climbs higher then we should see a retreat in the commodities index. The opposite is also true so a pullback in the dollar will see a commodities play to the upside. As we can see, markets are interlinked in both subtle and obvious ways.
Chart 5 – Daily Bar Chart GI-Spotv
click chart to enlarge
Good Trading
Aaron Lynch
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