Currency/Commodity Markets
Below we show the Australian dollar (AUD) futures and the stock price of FreePort McMoRan (FCX).
The simple point here is that the metals and miners trend with the commodity currencies so as long as the AUD is flat to lower the stock price of FCX should be heavy as well.
Moving on we show two charts of cocoa futures and the Nasdaq Composite Index at bottom right. The top chart shows the time frame through 2002 and 2003.
The chart shows that cocoa futures prices have a tendency at times to trend in almost exactly the opposite direction of the equity market. We could have used the S&P 500 Index for this argument but have focused on the Nasdaq instead.
We have no idea why cocoa prices have and are trending inversely to the equity markets but thought it worth the effort to at least point out the relationship. One might argue that this has everything to do with the dollar’s weakness and the push into commodities as a hedge against inflation but that wouldn’t help explain why these markets were doing much the same thing way back in 2002 and 2003. In any event... notice that the peak for cocoa in mid-March went with the lows for the Nasdaq but that cocoa prices were starting to jump higher towards the end of last week as the equity markets rolled over.
Below we show the gold etf (GLD) and the product of crude oil futures times natural gas futures.
At the end of last week the product of oil times gas curled just a bit lower. If it starts making new highs this week then we would have to expect new highs for gold as well. However, since it remains below the March peak with the Nasdaq above the March lows... we will continue to focus on the potential for the commodity markets to complete a ‘crash top’ later this month.
Short-Term Views
Below we show the Nikkei 225 Index and the gold etf (GLD).
On page 3 we suggested that the energy price combination (oil times gas) had yet to make new highs which at least opened the door for the argument that commodity prices have already peaked. The Nikkei is trending in exactly the opposite direction of gold prices so the better it does the more negative the argument for commodity prices and vice versa.
Below we show the Canadian dollar (CAD) futures and the ratio between the Canadian (EWC) and Japanese (EWJ) etfs.
The point here is that the CAD trends with the commodity theme and through last week it was anything but robust as it moved back below the 200-day e.m.a. for the 4th time since January. The CAD has fairly important support between .96 and .97 but if, as, or when this support fails the EWC/EWJ ratio suggests that Japanese shares should finally begin to outperform the commodity price sensitive Cdn equity market. The bottom line is that the commodity trend is still positive although small cracks have been appearing here and there and when it turns negative then it makes sense to like the Nikkei.
Below right we show the CRB Index from the current time period and the S&P 500 Index from 1987.
To really kick in the ‘crash top’ outcome the CRB Index would still have to break back below the 50-day e.m.a. line and continue down to the March lows around the 380 level. Then if the CRB Index were to break to new lows it has the potential to decline by another 20% or 30% into May. This would obviously be a positive for the U.S. dollar and the U.S. equity markets- with an emphasis on the Nasdaq- along with Japan’s Nikkei 225 Index.
