I’m using SLV as a proxy for Silver… SLV is down huge on above average volume when the overall trading volume is fairly low…
· 50% Fibonacci retracement for the run from early 2009 to the May 2011 peak is around $25
· 25 is a nice round number to anchor psychologically
· next major support is also at 25
I have liked coal for the last couple years despite of the global warming/green energy/fierce environmental protection backdrop… for the foreseeable future I see demand for coal to keep rising regardless of what happens with the renewable energy sources.
Why I feel that way?
Two stats from World Coal
Coal provides 27% of global primary energy needs and generates 41% of the world’s electricity
Approximately 13% (around 717Mt) of total hard coal production is currently used by the steel industry and almost 70% of total global steel production is dependent on coal.
If you prefer to view graphics like I do, here are some key figures from IEA’s World Energy Outlook 2010
So… if you are still not convinced, too bad J
Moving forward, I plan to analyze some coal stocks and present my analysis here.
Grande Cache Coal (GCE.TO)
I’ll start with the easy technical stuff for Grande Cache coal – a metallurgical coal miner (i.e. coal used for steel making)
- The stock has broken out of the recent downtrend channel (blue) and closed above the 50, 100 & 200 day moving averages on reasonably high volume
- Green lines are support, Red lines are resistance and there is immediate resistance around 10.5, then at 11 and 12
In the next post, I will delve in to the fundamentals of GCE
Update: Right after posting this article I stumbled upon this piece from FP via Alphaville. Trust me I’m not looking for an opinion that confirms my thesis (confirmation bias) quite the contrary. Here are the salient points from the FP piece:
According to official data, Chinese investment in coal was about the same as its investment in oil, gas, and scientific research combined. The investment in coal at home was larger than the PRC’s outward investment in all non-bond assets — all energy, all metals, and so on — in 2010.
From 1980-1996, coal consumption growth was about 5 percent annually. From 2003-2009, under leaders Hu Jintao and Wen Jiabao, it was over 13 percent annually.
Coal previously accounted for less than 70 percent of Chinese electricity use; now it is over 80 percent.
TSX – perhaps May arrived earlier this year!
Levels to watch
· 13100 (61.8% Fibonacci retracement)
· 12325 (38.2% Fibonacci retracement)
Where are emerging markets going? Do the emerging market central banks and Treasurers have the balls to stop inflation or they can’t live without the growth on stereoids?
The MSCI iShares Emerging Markets index has failed twice to break the 2008 highs… are we heading lower to test May 2010 levels or break the 2008 highs?
Gold has declined $100 or 7% at pixel time from its recent all-time high… even when the US Dollar is declining (correlation trade broken?)! I think it is primarily due to rising growth forecast for the global economy (read US economy).
Technically, the charts speaks for itself:
· Medium term trend seems intact on the 1-Year chart
· We are near strong support area at $1325
The 3-year chart, however is more interesting… gold is hanging to dear life with these support points:
· Green long-term trend line
· Green support line
· 100 day moving average
If the long-term trend line is successfully breached, then I think we will test 61.8% Fibonacci retracement of the rise from $700-1425 at about $1150
Economics 101 aside, commodities as a store of value will only go higher in the long-term (> 5yrs) because the only solution to massive public and private sector debts is inflation.
A quick update on the technical picture, highlighting major support and resistance levels.
Currencies are grabbing headlines these days thanks to constant tug-of-war in the race to the bottom. Japan announced quantitative easing today. Last week, the US Fed signalled another round of QE and Bank of England has maintained its QE stance.
With that, here is a technical picture of the US Dollar… the rather ominous death cross on the USD doesn’t bode well for its trading partners and is probably in anticipation of QE2 measures leading to downward dollar spiral.
The recent US dollar sell-off was rather quite fast and the chart now signals a recovery from the oversold conditions…The recent sell-off in USD is good news for equity markets… S&P 500 is breaking above the 1150 mark today… finally, after trying everyday for the last 7 trading sessions.
The 50 day SMA is trending upwards and could cross the 200 SMA before the end of 2010 giving the all clear Golden cross.
One caveat is that the September rally wasn’t accompanied with increase in volume but then again the average volume relative to prior years has been low in 2010.
A quick update on market charts… given the recent correlation it is not surprising to notice that major markets are either at key support or resistance levels… here is a summary of the major markets
(Note: Red arrow indicates resistance & Green support)
S&P 500 – can it hold the 200 day moving average?
CRB – Commodites Index – 6 month high… Nearing Golden Cross (50 day moving average crossing the 200 day moving average from below)?
USD Dollar – will it hold the 200 day support? It did in early August but it is also closer to the Death Cross (converse of Golden cross)
TSX – 125 points shy of the 52-week high, RSI approaching 70 and imminent golden cross signal
Fear – doesn’t matter how hard the double-dip camp tries, VIX hasn’t broken the downtrend line from mid-May but it is also resting at key support level of 20
I’m curious to see which side wins…I’m still biased to the downside given the fundamental picture.