On a two-year ris­ing path

The bull mar­ket in the US may be ma­ture, but th­ese in­dices show it is still in­tact

Financial Mail - Investors Monthly - - Analysis: Technical -

The Bloomberg in­dus­trial met­als in­dex tracks the move­ments in the fu­tures con­tracts of four in­dus­trial met­als: alu­minium, cop­per, nickel and zinc.

The in­dex re­flects the un­der­ly­ing com­mod­ity fu­tures price move­ments only, and is quoted in US dol­lars. It is a use­ful in­dex to fol­low in the con­text of di­ver­si­fied min­ing stocks and the gen­eral di­rec­tion for in­dus­trial met­als prices.

The chart has been ex­hibit­ing bullish char­ac­ter­is­tics for the past two years. A clear up­ward trend is ev­i­dent, with suc­ces­sively higher lows as well as higher highs. The trend has been tested five times over the past two years, and on each of those oc­ca­sions buy­ers have emerged to sup­port the price and push it higher.

So far in 2018 the in­dex has been track­ing side­ways, with the level of 142 of­fer­ing stiff over­head re­sis­tance. One could ar­gue that there is an in­verted head-and-shoul­ders pat­tern that has formed since Jan­uary, with the neck­line at that 142 level. A break above 142 on the in­dex is likely to see the price rise fur­ther to­wards a mea­sured tar­get of 155.

The weekly sto­chas­tic os­cil­la­tor re­cently formed pos­i­tive re­verse di­ver­gence. This oc­curs in an up­trend when the price makes a higher high but the os­cil­la­tor makes a lower high. It in­di­cates that the os­cil­la­tor is more over­sold on a cur­rent pull­back than on the pre­vi­ous pull­back, and yet the price is at a higher level. It typ­i­cally pre­cedes a price in­crease.

Also in­ter­est­ing is that the rel­a­tive-strength in­dex main­tains a read­ing above 50 in a strong up­ward trend. On this chart the rel­a­tive strength in­dex has held above 50 since the ris­ing trend be­gan in early 2016. The tech­ni­cal setup there­fore re­mains bullish on mul­ti­ple met­rics here.

While the S&P 500 and the Dow Jones in­dus­trial av­er­age are the two most com­monly fol­lowed US equity in­dices, the Rus­sell 2000 small cap in­dex should not be ig­nored.

This is where the bulk of small and mid-sized Amer­i­can busi­nesses are listed. Un­like the afore­men­tioned in­dices, which fea­ture huge multi­na­tional con­glom­er­ates, the Rus­sell 2000 has com­pa­nies that are ar­guably a bet­ter re­flec­tion of the health of the US stock mar­ket at a do­mes­tic US level.

The Rus­sell 2000 is trad­ing at a record high. From a tech­ni­cal per­spec­tive the up­ward trend, which has been in­tact since early 2016, can­not be faulted. Each time the in­dex has pulled back to the ris­ing trend line it has been met with buy­ing in­ter­est, and the price has con­tin­ued higher.

Re­cently the in­dex con­sol­i­dated into a tri­an­gle pat­tern. The break above 1,600 val­i­dated that pat­tern, which pushed the price to new highs and points to a pro­jected tar­get of

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